CIHM 
Microfiche 
Series 
(IMonographs) 


ICMH 

Collection  de 
microfiches 
(monographies) 


Ql 


Canadian  Inatituta  for  HIatorical  MIcraraproductlona  /  InaMut  cafMdian  da  mleroraproductiona  hiatoriquaa 


1995 


Technical  and  Bibliographic  Notes  /  Notes  technique  et  bibliographiques 


The  Institute  has  attempted  to  obtain  the  tiest  original 
copy  available  for  filming.  Features  of  this  copy  which 
may  be  bibliographically  unique,  which  may  alter  any  of 
the  images  in  the  reproduction,  or  which  may 
significantly  change  the  usual  method  of  filming  are 
checked  below. 


0 


^     Cokxjred  covers  / 

Couverture  de  couleur 


I     I     Covers  damaged  / 

' — '     Couverture  endommagee 

I     I     Covers  restored  an*or  laminated  / 
— '     Couverture  restauree  et/ou  pelliculie 

I     I     Cover  title  missing /Le  litre  de  couverture  marx)ue 

I     I     Coloured  maps  /  Cartes  gtegiaphiques  en  couleur 

[^     Coloured  ink  (i.e.  other  than  blue  or  Wack)/ 
ErKre  de  couleur  (i.e.  autre  que  bleue  ou  noire) 

I     I     Cokxjred  plates  and/or  illustrations  / 
Planches  et/ou  illustratnns  en  couleur 

I     I      Bound  with  other  material/ 
' — '     Relieavecd'autres  documents 

I     I     Only  editton  available/ 
' — '     Seule  Mitkm  disponible 

I  I  Tight  binding  may  cause  shadows  or  distortion 
along  interior  margin  /  La  reliure  serr^e  peut 
causer  de  I'ombre  ou  de  la  distorsk>n  le  long  de 
la  marge  intdrieure. 

I  I  Blank  leaves  added  during  restoratkxis  may  appaer 
within  the  text.  Whenever  possible,  these  have 
been  omitted  from  liming  /  II  se  peut  que  certaines 
pages  blanches  ajouttes  kxs  d'une  restauratkm 
spparshsenl  dans  le  texte,  mais,  kxsque  cela  etait 
possHe,  oes  pages  n'cnl  pas  M  filmies. 


L'Institut  a  microfilms  le  meilleur  exampiaire  qu'il  lui  a 
6t6  possible  de  se  procurer.  Les  details  de  cet  exem- 
plaire  qui  sont  peut-6tre  uniques  du  point  de  vue  bibli- 
ographique,  qui  peuvent  modifier  une  image  leproduite, 
ou  qui  peuvent  exiger  une  modifications  dans  la  m6th- 
ode  normale  de  filmage  sont  indk]ute  ci-dessous. 

I     I      Cokxired  pages/ Pages  de  couleur 

I     I      Pages  damaged/ Pages  endommagees 

I     I      Pages  restored  and/or  laminated/ 
— '      Pages  restaurtes  et/ou  pelleuKes 

|v/T     Pages  discoloured,  stained  or  foxed  / 
' — '      Pages  decok>r6es,  tachetees  ou  pk|uees 

I     I      Pages  detached/ Pages  d«ach«es 

rT''    Showlhrough  /  Transparence 

r^     Quality  of  print  varies/ 

"^      Quality  inegale  de  I'lmpresston 

I     I      Includes  supplementary  matenal/ 
—      Comprend  du  materiel  suppWmentaire 

r~]  Pages  wholly  or  partially  obscured  by  errata 
slips,  tissues,  etc.,  have  been  refilmed  to 
ensure  the  t>est  possible  image  /  Les  pages 
totalement  ou  partiallement  obscurcies  par  un 
feuillet  d'errata,  une  pelure,  etc.,  ont  iti  fiimees 
a  nouveau  de  fa^on  a  obtenir  la  mellleure 
Image  possible. 

I  I  Opposing  pages  with  varying  colouration  or 
discdourations  are  filmed  twtee  to  ensure  the 
best  possible  imapfl  /  Les  pages  s'opposant 
ayant  des  colorations  variables  ou  des  dteol- 
oratk)ns  sont  fiimees  deux  fois  afin  d'obtenir  la 
meilleur  image  possible. 


n 


AddWonal  comments  / 
Commentaires  suppKtnentaires: 


This  itmi  it  fihnad  at  ttw  rtduetion 


mie  ciMdttd  Inlaw/ 


Ct  docwmnt  nt  film*  au  tau>  dt  rMvctien  indiqui  ei-danaiis. 


10X 

r"""^ 

MX 

liX 

SX 

»x 

XX 

c 

1 

y 

~ 

13» 

12X 

ttx 

_ 

20X 

24X 

^^"^ 

^"^ 

MX 

'—"' 

'~— ' 

Th«  eopv  filmtd  h«r*  hu  bMn  rapreduead  thanks 
to  tha  9«naroaltv  of: 

National  Library  of  Canada 


L'axsmplaira  film*  fut  rapreduil  grtca  t  la 
gtatroalt*  da: 

Blbllothiqua  natlonala  du  Canada 


Tha  imagaa  appaaring  hara  ara  tha  bast  quality 
possibia  eonaidsring  tha  condition  and  iagibility 
of  tha  original  copy  and  in  liaaping  with  tha 
filming  eenuaet  spocificstions. 


Las  imagss  suivantaa  oni  M  raproduiias  avsc  la 
plus  grand  soin.  eompl*  tsnu  da  la  condition  at 
da  la  nsnat*  da  I'sjiampiairs  filmi,  si  sn 
eonformitO  avac  laa  conditions  du  contrat  da 
tUmaga. 


Original  eopios  in  printod  papar  eovara  ara  fllmad 
baginning  with  tho  front  eovar  and  anding  on 
tha  last  paga  with  a  printad  or  illustratad  impraa- 
sion,  or  tha  back  covar  whan  appropriate.  All 
othar  original  copioa  ara  fllmad  baginning  on  tha 
first  paga  with  a  printad  or  lllustrstsd  Impraa- 
sion.  and  anding  on  tha  last  paga  with  a  printad 
or  illuawatad  imprassion. 


Laa  aKamplairas  originaux  dont  la  couvartura  an 
papiar  ast  imprimto  sont  fllmto  an  commancant 
par  ia  pramiar  plat  at  an  tarminant  soil  par  la 
dsrnlOrs  paga  qui  comporta  una  amprainta 
d'imprasalon  ou  d'illustratlon,  soil  par  ia  sacond 
plat,  salon  la  cas.  Tous  laa  autras  axsmpiairss 
originaus  sent  tilmts  an  commancant  par  la 
pramMra  page  qui  eomporto  una  amprainta 
d'impraasion  ou  d'illustratlon  at  an  tarminant  par 
la  darnlAra  paga  qui  comporta  una  talla 
amprainta. 


Tha  last  racordad  frama  on  aach  microflcha 
shall  contain  tha  symbol  ^m-  (moaning  "CON- 
TINUED"), or  tha  symbol  V  Imaaning  "END"), 
whiehavar  applias. 

Mapa.  platas.  charu.  ate,  may  ba  filmed  at 
different  reduction  ratios.  Those  too  large  to  be 
entirely  included  in  one  exposure  are  filmed 
beginning  in  the  upper  left  hand  corner,  left  to 
right  and  top  to  bottom,  as  many  frames  ss 
required.  The  following  diagrams  illustrate  the 
method: 


Un  dea  symboles  suivents  appereitra  sur  la 
darnitre  image  do  ehaque  microfiche,  leion  le 
cas:  la  symbols  ^  signifie  "A  SUIVRE",  la 
symboie  V  signifie  "FIN". 

Les  cartas,  planches,  ubieeux,  etc.,  peuwent  itra 
tilmto  *  des  uux  do  rMuction  diffArents. 
Lorsque  ie  document  est  trop  grand  pour  ttre 
reproduit  en  un  soul  cliehO,  il  est  film*  i  partir 
da  I'angle  supdrieur  gauche,  do  gauche  t  droite. 
et  do  haut  en  bes.  en  prenent  le  nombre 
d'Imegea  ndeesseire.  Les  diagrammes  suivents 
illustrent  la  mothode. 


1  2  3 


1 

2 

3 

4 

5 

6 

••CtOCOW   nSOUITION   TBT  QUIT 

(ANSI  and  ISO  TEST  CHAiT  No.  2) 


H^ 


I.I 


■  2J 
la 


■  72 
11.8 


1^1^ 


A 


^PLIED  IN/HGE    Ir 

''t^3  Coil   uain  Strwl  ' 


Banking  and  Commerce 


A   PRACTICAL  TREATISE  FOR  BANKERS  AND  MEN  OF 

BUSINESS.    TOGETHER   WITH   THE    AITHOR'S 

EXPERIENCES     OF    BANKING     LIFE     IN 

ENGLAND  AND  CANADA  DLR- 

ING    FIFTY    YEARS 


By  GEORGE  HAGUE 

Formerly  General  Manager  of  The   Merchant!   Bank  ol  Canada 


Experientia    ilo(H 


NEW     YORK 

THE    BANKERS    PUBLISHING    COMPANY 
■  ••> 


Ha 

C.2. 


CopyriBhl,    l«H 


INTRODUCTION. 

'yilF,  following  work  i>  llic  ri(l.cllnn  of  n  banking  „„,!  , ,„,.„|,1 

^      <x|i.nence  .xlrndlnu  over  more  llinn  fortv  vrars  of  nilii.^  life  in 

Knglnnd  n.id  Ciin.dn.  topther  with  tht-  oi».T> nlions  ifnin.d  in  tht 

...|..rv,.,„„  of  ,1,.   N,.„   York  l„,.i„.„  „f  ,„„.  „f  ,1„    l^,^*^.,  ("„„d  „n 

Bank.  f»tnl,ll,l,t.d  in  that  c<nlrr.  ■■"".a.nn 

Thi.  Ir,  nli,.-,  il  will  l,c  „h..rvd.  r.lal,.s  not  ,i,n,.|y  to  Iwnking.  like  th. 
practicnl  work  of  >'r  Cllharl.  or  tl,o  ,ci,nlilir  trrali..-  of  a  political 
.cononmt  lik,-  .MoI..„d,  l„.t  cov,t,  al.o  tl,,-  firld  of  .oounrrcinl  and  nmnu- 
fjcturin,!  oiiorntion,  a,  w,ll,  and  dl,c,„«,-,  tl„-  .mw»  of  ,„cc.«s  or  fail- 
ITf,  in  tacli  of  tllcm. 

Tl„-  niillior  ha.  lakrn  particular  pain,  to  open  up  tl,c  rclr.tion  of 
Bnnkinj,  t„  mimrcc,  as  a  handmaid  and  tributarv  to  it.  and  thi>  ., 
d,.t,n^„„h.,„  iron,  other  mode,  of  en.ployinR  and  inv.  ..in,  umnev  and 
ha,  endeavored  to  ,how  the  danger  of  confounding  the  fonction,  of  , 

S',"  ,  ■  "J.  ",  '"""■""""•  "■■  "  '•"»"  <'>n>P»".v,  wl,o,e  ,phere  I. 
found  in  the  lending  of  money  on  mortgage,  or  11,'  .uulertaking  It  iLZ 
tor  long  periods  to  government,  or  corporation, 

'•  ""''""H  "Ko  oh,,  rved  that  a  large  part  of  the  art  of  hanking  con- 
..,ted  ,n  knowing  the  diHerence  between  a  bill  of  exchange  and  a  morl- 

Simple  a,  this  may  sound,  it  open,  up  a  whole   world  of  intere,ting 

h..  baffl""^  .1"  TZ  ";""•""'•'?•  "■"""  of  it.  in  it,  ,.r«-t,.  al  application 
h.,  baffled  the  ability  of  many  a  man  otherwi,e  emin.n,  1„  the  ..here  of 
finaijce      And  the  failure  to  carry  out  thi,  di.linetio      .„   „r»  ha. 

.molved  many  an  institution  of  the.,e  time,  in  finane,  ,1  over.-  ,  41 
thi,  .„ II  be  con.idered  in  the  course  of  the  work  no.  sul.milt,  and'., 
the  author  ha,  largely  drawn  from  hi,  own  experience  a„,l  le-v^Ho" 
he  Ih.nk,  ,t  may  be  well  to  ,ay  a  few  word,  about  them 

Commencng  hi,  hanking  career  in  one  of  the  joint-,t,„  I,.   „r 

the  ,,orth  of  England,  having  it,  centre  in  a   large  manufaet 
w,th  branches  i„  the  agricultural  di,trict  around,  the  author  be,  «, 

,ar  with  reprcentalive,  of  nearly  every  class  of  the  oroduc.g  ,..  „„, 
of  Lngland.  "  *^  - 

Thi,  hank,  in  which  be  served  for  nearly  eleven  years,  was  founo  >  bv 
men  of  rcnarknble  intelligence  and  ability,  who  had  studied  the  pro,  '-, 

m  wh,cl,  bankin,.  should  be  conducted,  and  carried  them  into  eir„      « 
judiciously,  that  the  bank  has  had  an  uninterrupted  career  of  pr..ne, 
«nce  I  ,  foundation,  and  is  still  well  known  as  one  of  the  be,t-m . ,.,- 
banks  jn  Knfflnnd.  ^ 

In  course  of  time,  «nd  after  «>me  years'  experience  in  a  large  husine,. 


ISTRODIXTIOX. 


offirv.  he  rntcrril  Ihr  irrvlcr  of  onr  of  the  rhnrtrrrd  bnnki  of  Canad/i, 
•nd  thirt,  t<rit  is  Brnnrh  Mann);pr  nnd  then  n«  Cnfhlrr  (a  term  rijuiv 
lent,  In  Canudn.  to  (rnrrnl  manager),  hr  was  brought  into  contact  with 
the  ngriruUiirUtt,  mrrrhnntH  and  ninnufarturert  of  the  I>ominlon,  all 
which  prf)tart'd  him  fur  the  larger  iphrrr  to  which,  in  the  providence  nf 
God,  he  waa  aftrrwardi  called,  via.,  to  the  general  innnagrrihip  of  one 
of  the  larger  hank*  of  Canada  whnif  bi*»incii  cxtrndi  over  nearly  every 
diitrict  of  the  country,  from  the  Atlnn:tc  to  the  PaciUc.  Theta  larger 
banks  all  have  ofRc-s  in  New  York,  and,  in  connection  with  the  New  York 
Agency,  the  author  became  familiar  with  the  various  dasiet  of  busineii 
carried  on  by  foreign  hanks  In  that  city. 

Note  Circulation. 

>Vhile  engaged  In  the  first  of  these  spheres  of  work  In  Canada,  the 
ODvernnient  of  the  day,  under  the  guidance  of  its  Finance  Minister,  cn- 
dcHvored  to  change  the  basis  of  the  note  circulation.  The  chi?- '  '  pro- 
posed was  in  furtherance  of  a  certain  theory  of  note  Isiuei,  whlc  ite  hod 
adopted.  The  plan  proposed  would  have  met  the  pressing  necessities  of 
the  Government  at  the  time,  but  it  would  scriouslv  have  crippled  the  power 
of  the  banks  to  carry  on  the  businms  of  the  agricultural  districts  of  the 
country.  As  it  was  in  one  of  these  that  the  busincis  of  the  bank  he 
was  then  connected  with  was  mainly  done,  he  made  strenuous  efforts, 
along  with  others  similarly  situated,  to  induce  the  Government  to  modify 
Its  scheme,  in  so  far  as  to  permit  the  banks,  under  regulations,  to  continue 
to  circulate  their  own  notes.  These  measures  compelled  a  cloiif  study  of 
the  whole  question  of  note  circulation,  and  the  author  was  drawn  into 
taking  a  prominent  part  in  the  discussions  that  arose  respecting  it.  Hll 
opinions  gradually  took  the  shape  of  doubt  as  to  the  desirability  of  any 
Government  Issuing  notes  for  circulation;  all  such  notes,  In  every  coun- 
try of  the  world  where  they  were  issued,  even  in  the  United  States,  be- 
ing at  that  time  at  a  heavy  discount.  The  Canadian  Government,  how- 
erer,  wm  too  strong  to  permit  of  Its  hands  being  tied  In  the  motter,  and 
a  system  of  Government  issues  was  established,  under  very  strict  regula- 
tions as  to  redemption,  which  has  continued  to  work  side  by  side  with  the 
banking  Issi">b  of  the  country  ever  since. 

After  some  years,  an  attempt  was  made  by  the  Government  to 
assimUate  the  circulation  of  Canada  to  that  of  the  United  States.  The 
bankers  doing  business  in  the  agricultural  districts  saw,  however,  that 
such  a  system  would  bt  inimical  to  their  interests  and  those  of  their  cus- 
tomers, and  in  fact  to  the  interests  of  the  country  generally.  They  there- 
fore united  in  at,  Informal  association,  of  which  the  author  became  secre- 
tary, to  oppose  the  measure.  The  discussions  that  arose,  and  which  were 
IskcTi  np  by  Boards  of  Trade  throughout  the  country,  were  continued 
through  several  sessions  cf  Parliament,  but  ultimately,  under  the  auspices 
of  another  Finance  Minister,  a  compromise  was  effected,  and  a  measure 


INTBODU  HON.  , 

BAxmimcT. 

„„L«i°"ir.iV"''';  ■'''*"'"  ""•  ""■ '  ""'• "  •"!'i»«'' '"  '■«■  -. 

«n  «.,l^  ,i,h  ,M,  ccdito™,  i.  .  „.„„  of  ,iul  lmport.n«  u,  b.nk«. 
n..„„ch  «  .  ..r„  p.rt  of  ,l„„  ......  con.1.,.  of  Z  p„„„.,  .Wi«.' 

m»y  «„d    h.m«lv„  „„,bl,  to  dl«.h.,g,  ,ho«  obllg.tlon..     At  on.  -Hod 

r,«L".„°d'.'o'TV7:'  '".  '■"""''"■  "■'  B""''"'P".v  L"  —  -f  .uoh 
r„  t™™„\  •"  ,"'"""'•'"'-'•  "'  '"  f»™  •  Po-illv.  irmpftlon  to  tr.d.« 
In  trmporarr  rmbArraiinipnt. 

Ih™  th!  i;  J"  ";  °"'  '"■"'""'''  '''■™"  '""""'•'J'  *"• "« to 

f»r  Wrond  th.  ..„,„.  It  I.  ..In  to  expect  th.t  .t  .„y  timo.  ov„  the 
mo.l  pro.p,rou.,  tr.diDg  c.r.  be  conducted  without  inwlvenci-l  .t  .11 

on.  of  ln«.lvc,,ele.  refl«*  very  f.i.ly  the  condition,  of  tr.de  .t  .n,  p" 
llc,,l.r  p.r,«,.  ,,.1  the  period  .pok.n  of  l„„lve„cle.  ,e,e  „  numcL 
..  to  l«„me  .  con-t,.,!  s„„ce  of  .n.iety  to  .11  the  bank,  of  the  country 
.nd  the  evil  w..  being  con.l.„t!y  .ggr.v.ted  by  the  development  of  . 
^"1  ,  '"'°  y™"^''  ""•"•  "'"'  ""^  »  *Mr  bnilne..  to  .»i,t  InwlvenU 
to  obt,ln  .eltlemenl.  under  the  Act,  .nd  n,.ny  of  whon.  becme.  .Imort 
In  .pite  of  t hcmKlve.,  pKimole,.  of  ln.olvency.  The  B.nkruplcy  Act  of 
C.n.d.,  .1  lh.t  ttae.  w„  l«,ked  upon  by  l.t  b.„ker.  ..  ,«lly  c.l- 
^^^     iIYkT"  '""'""'■  '""•"  "»"  """"wl".     In  th.«  circuB- 

r  oo^  ,m,  .' '",?  '"  i"'  '"*'  '"""•  "'"'  ""■'  """'  '»  '"■""""• 
»  q-'te  willing  to  allow  the  .ct  to  expire,  by  efflux  of  time,  .nd  r.ther 
u    Jure  the  evil,  of  having  no  bankruptcy  l.w  .t  .11,  th.n  f.«  the  poi- 


ri  INTRODUCTION. 

aibilitjr  of  a  recurrence  of  the  evils  that  had  so  sorely  troubled  them 
for  years  back. 

But  after  a  time  a  new  crop  of  evils  sprung  up,  and  grew  to  such  a 
height  and  extent  that  wholesale  traders  and  bankers  became  urgent  in 
their  demands  for  the  passing  of  a  new  law.  Men  failed  and  gave  pref- 
erences to  relations  and  favored  creditors  to  such  an  amount  as  to  work 
(lagr%nt  injustice  to  the  rest  of  their  creditors,  and  the  law  afforded  no 
redress. 

Men  went  on  trading  after  they  were  insolvent  and  frittered  away 
their  whole  estate,  while  their  creditors  were  powerless  to  stop  them. 
They  rould  thus  go  on  buying  goods  while  there  was  no  prospect  of  pay- 
ing for  them,  and  in  other  ways  ecunmitting  grievous  trade  wrongs,  of 
which  the  ordinary  law  took  no  cognizance. 

The  Bankers'  Association,  under  these  circumstances,  had  full  dis- 
cussions of  the  whole  matter,  and  considered  what  the  provisions  of  an 
equitable  law  of  bankruptcy  should  be.  There  was  little  difference  of 
opinion  upon  the  subject,  and  they  Trrived  at  conclusions  which  were  in 
due  time  communicated  to  the  Govtriiment  of  the  day.  The  ideas  em- 
bodied in  these  conclusions  will  be  found  largely  reflected  in  the  chapter 
on  Bankruptcy. 

It  will  be  observed  that  this  work  has  been  chiefly  written  from  a 
Canadian  standpoint.  This  was  inevitable,  seeing  that  the  author 
drew  so  largrly  frnm  his  own  experience  and  observation,  as  any  author 
must  do  whose  work  is  of  a  practical  character.  Thus  Mr.  Gilbart's  able 
work  is  written  from  the  standpoint  of  London,  and  reflects  largely 
B  London  banker's  ideas  on  the  subject.  That  excellent  little  treatise 
called  "The  Country  Banker"  gives  the  views  of  a  banker  from 
the  country  districts  of  England.  The  author,  however,  though  writing  in 
Canada  and  from  that  standpoint,  has  endeavored  to  avoid  a  narrow  and 
partial  view  of  both  banking  and  commerce,  and  has  founded  his  remarks 
on  the  broad  principles  which  are  common  to  both  of  them  everywhere.  He 
therefore  confidently  hopes  that  the  work  may  be  found  a  useful  hand- 
book to  bankers  and  merchants  in  every  part  of  the  country  to  which  it 
mav  And  its  way. 


After  a  life  of  business  activity  protracted  beyond  the  usual  course  of 
human  affairs,  he  now,  in  retirement,  is  able  to  look  back  quietly  upon 
the  activities  and  conflicts  of  former  years,  and  can  sympathize  with  a 
new  generation  who  are  fighting  their  way,  with  varied  success,  through 
the  same  conditions  and  circumstances.  He  has  written  this  work  largely 
for  their  guidance;  and  not  for  theirs  only,  but  for  the  guidance  of  their 
customers;  for  he  has  stood  on  both  sides  of  the  counter  in  his  lime.  He 
has  felt  more  than  once  at  the  end  of  a  bank  year,  but  especially  when  a 
General  Manager,  as  if  he  had  just  concluded  a  voyage  round  the  world, 
and  was  thankful  to  have  brought  his  vessel  once  more  safe  into  port. 


INTEODUCTION.  ,i, 

In  theM  voyage,  (to  purine  the  .imile)  he  had  the  opportmilT  of  notbc 
the  ihosli  .nd  quickaandi  thnt  Uy  in  the  way,  and  of  noting  alao  the 
indieatlont  of  the  weather,  <o  as  to  look  out  for  eoming  stonra  and  learn 
when  It  waa  necessary  to  take  in  sail,  and  when  he  might  spread  hia  saU 
to  the  breeae  with  safety.  He  th™,  in  course  of  time,  accmnulated  . 
body  of  signs  and  indications  of  which  he  frequently  availed  himself 
AU  Uiis  he  has  endeavored  to  embody  in  a  readable  form  in  this  trea- 
tise, which  he  now  sends  forth,  with  the  hope  that  it  may  serve  for  the 
guidance  of  men  who  are  pursuing  a  course  in  which  many  difficnltie. 
and  dangers  have  to  be  encountered,  but  which  may  be  safely  followed 
If  men  are  only  willing  to  learn  by  the  experience  of  others,  and  to  give 
close  attention,  hour  by  hour,  as  the  mariner  does  to  his  compass,  to  the 
aspect  of  Ihmgs  around  them.  It  is  a  course,  in  truth,  in  which  many 
have  been  shipwrecked,  but  the  shjpwreck  has  generally  arisen  from  inat- 
tenUon,  from  conceit,  from  unwillingness  to  take  advice,  and  learn  by  the 
eipenence  of  those  who  have  gone  before  them.  Glo.  Haooi. 

MoNTRiAL,  March,  IjWS. 


CONTENTS 


CHAPTER  I.  p,j, 

ELEMENTARY    PRIXCIPLES    OF    BANKING i 

CHAPTER  U. 

THE    ELEMENTARV    PHIXCIPI.ES   OF   COMMERCE    IN   CONNEC- 
TION  WITH   BANKING    g 

CHAPTER  lit. 
FURTHER   PRINCIPLES  OF  BANKING  AND  DEVELOPMENT  OF 
PRIVATE   BANKING   IN   ENGLAND    13 

CHAPTER  IV. 
JOINT  STOCK  BANKING  IN  GENERAI ,7 

CHAPTER   r. 

THE  INTERNAL  ECONOMY  OF  A  JOINT  STOCK  BANK   a 

CHAPTER   VI. 

DIRECTORS   OF    AN   INCORPORATED    BANK    s» 

CHAPTER   VII. 
OFFICERS  OF  AN   INCORPORATED   BANK   HAVING  BRANCHES 
—THE   GENERAL  MANAGER    3g 

CHAPTER  VIII. 
THE    SUCCESSFUL   MERCHANT    ^^ 

CHAPTER  IX. 
THE  SUCCESSFUL  MERCHANT  (Contl„»rf)    „ 

CHAPTER  X. 

MANUFACTURING    

W 

CHAPTER  XI. 

THE    SUCCESSFUL    MANUFACTURER    ,„ 

CHAPTER  XII. 

ELEMENTS  OF  SUCCESSFUL  BANKING    7j 

CHAPTER  XIII. 

THE    BANKER'S    INFORMATION    AND    OTHER    ELEMENTS    OF 

SUCCESS    

83 

CHAPTER  XIV. 
LOANS    


X  CONTENTS. 

CHAPTER  xr.  Puge 

LOANS  TO  DEALERS  IN  GRAIN   AND  OTHER  AGRICULTURAL 
PRODUCE    "'* 

CHAPTER  Xfl. 
LOANS  lO  MANUFACTURERS  AND  IMPORTERS   "3 

CHAPTER  XVU. 
LOANS  TO  RAILWAYS  AND  RAILWAY  CONTRACTORS   IW 

CHAPTER  XV 111. 
LOANS   AND   ADVANCES   TO   GOVERNMENTS   AND   MUNICIPAL 
CORPORATIONS    '" 

CHAPTER  XIX. 
LOANS   ON    STOCKS    AND    BONDS    >** 

CHAPTER  XX. 
THE  DISCOUNTING  OF  TRADE  BILLS   -*' 

CHAPTER  XXI. 
FOREIGN    BILLS "' 

CHAPTER  XXll. 
OVERDRAFTS  IN  CANADA   AND  CASH  CREDITS  IN  SCOTLAND  ITl 

CHAPTER  XXlll. 

BANK    RESERVES    "' 

CHAPTER  XXIV. 

BANK   INVESTMENTS   AS   RESERVES    •" 

CHAPTER  XXV. 

SECURITY    \ND  SECURITIES   IN  GENERAL    >" 

CHAPTER  XXVI. 

SECURITY  AND  SECURITIES  IN  GENERAL   (Continued)    «» 

CHAPTER  XXVll. 

BANKING  AND  COMMERCIAL  LOSSES  '" 

CHAPTER  XXVlll. 

BANKING  AND  COMMERCIAL  LOSSES   (Continued)    Ml 

CHAPTER  XXIX. 
LOSSES  IN  CONNECTION  WITH  THE  IMPORTING  TRADE  AND 
OTHER  LINES  OF  BUSINESS  "* 


CONTEXTS.  xi 

CHAVTKR  XXX.  Page 

IRAUDS,  FOBGERIES  AND  DErALCATIOXS   g» 

CHAPTER  XXXt, 
A    BANKRUPTCY   LAW    Ml 

CHAPTER  XXXII. 

INSlIRAXrE  IX  ITS  REI.ATIOX  TO  BAXKIXG  set 

CHAPTER  XXXIII. 

THE  NATIOXAI.  BANKS  OF  THE  tXITED  STATES  AND  AMERI- 
CAX    nANKIXG    869 

CHAPTER  AAAVr. 
VARIOlfi  THEORIES  OK   NOTE  CIRCILATION    279 

CHAPTER  XXXr. 

BANKING   ACT   OF   CANADA    29(1 

CHAPTER  XXXri. 

IINAXCIAI.  PANICS  AND  BEVII.SIOXS  IX  ENGLAND  AND  THE 
UNITED    STATES    301 

THE  AUTHOR'S  EXPERIENCES  IN  FIFTY  YEARS  OF  BANKING 
LIFE  IN   ENGLAND  AND  CANADA,. 

CHAPTER    I. 

EXPERIENCES  OF  BANKING  LIFE  IN  ENGLAND 31S 

CHAPTER   II. 

MY  EXPERIENCES  OF  BANKING  IN  CANADA 317 

CHAPTER   III. 
MY  EXPERiFNCES  AS  A  BRANCH  MANAGER 3M 

■PTER   IV. 

EXPERIEVCES  IN  HEAD  O         JE  MANAGE.MENT  IN  TORONTO. .  342 

CHAPTER    r. 

NEGOTIATIONS  WITH  THE  GOVERNMENT  RESPECTING  CIRCU- 
I-ATIOX    3^ 

CHAPTER    ri. 
MY    EXPERIENCE     AS     GENERAL     MAN.\GER     IN    .MONTREAL 
INCLUDING    REFERENCES    TO    BUSINESS    IN    NEW    YORK, 
CHICAGO.  MILWAUKEE  AND  TO  THE   BARING  CRISIS  3«7 


A  Practical  Treatise  on  Banldng 
and  Commerce. 

CHAPTER  I. 
■LmOHTABT  PRIN01PL18  0?  BAMBNO. 

A   BAN«n-.  S«TI«   TO   THE    CoMMONITT-D.T.lWM.KT  or    MoDl.» 

Ba»k.ko-E«,„v«.nt  or  a  Bank'.  Fbkd,-R.iat.„n.  Bit.™ 

TM  BamkH  add  THI  MmchaST.  "WMIC 

M^    wiU  And  him..lf  under  obIig.tion  to  render  .ervic.  thereto.     TbU 
.„„,!.      l'        n.  °^  °''^""^  "'"'  "  ^'f"""  °f  -^i"^  to  which 

:.«h'"e".l::.if..T  "■"■  °""**'"-  '^- "-' "  •  ■— " «"  -*. 

A  Bakkcr'i  Sertici  to  the  Cohhvhitt. 

*  f  "n  ".■'"  '  ™™""'""''  '•  °f  ""'»>"  kind.,  depending  generally  noon 
a.  inclination  of  the  individu.l.    Son,e  n,en  devote  thenScL  ,„  prX" 

tort  in  order  of  time  m  every  community,  but  survive,  in  the  mo.t  «J. 
vanced  .tage  of  development.  Other,  devote  them.elve.  to  „«,»,  what 
otter,  produce  Other,  to  the  «ork  of  (ra,.por,a<io,  by  landTwIter 
The.c  are  all  departmenU  of  what  i.  gerc.lirknown  a.'i„ia„°      T^ 

Zf^  1 ""'  I"""'  ")''"  '""*'  """"'  -■»  "«  -U  '»  """o-d  to 
C™h  r.i  7  "To"  "'  °  "■""-""i'y  with  which  the  people  of 
Canada  and  the  United  State,  are  familiar.  Long  before  the~  i.  .,, 
r«,airement  for  the  .ervice.  of  a  pe„on  who,e  bu.fne„7t".  to  Uke  Z 
of  money,  and  to  deal  in  it,  there  ha,  been  «,me  progre.,  madlin  th" 

filL^  „T^'"S  °";  '  '°^""™'"5'  f """.  of  farming,  .tore-keeping, 
«|hmg,  and  other  h.nd....a«..     In  addition  to  thi,,  there  generally  arii, 

ar.  6»t  f.w  ™™b.„  of  .hi.  cLT.  „1  a„T;J\,  °.''  "  '  ""'"  ""  '«»'■  '"•" 
tlou.  objwtor..  ■  °"°'  "  *  •"■»  "■"  "»""'  ■'""•  ">•  mo.t  cw- 


3  BANKING    AND    COMMERCE. 

the  clan  of  profpisional  mcii  who  make  or  adminiBtrr  law,  cure  diieate*, 
or  care  for  the  ipiritiinl  Intereiti  of  the  people. 

For  the  first  few  yearn,  a  very  imall  supply  of  actual  money  suffice! 
an  infant  commimity  in  the  conduct  of  its  buiineis.  Barter  in  varioui 
fonnii  is  the  ordinary  medium  of  exchange.  So  many  yards  of  cotton 
for  so  many  buahcls  of  wheat;  so  much  of  nets  or  ammunition  for  lo 
many  fish  or  skins.  This  and  such-like  modes  of  making  exchanges  serve 
all  the  prncticsl  purposes  of  life,  and  at  this  stage  of  development  all 
wealth,  roughly  speaking,  consists  of  land,  houses,  or  goods. 

But  as  time  goes  on,  Money  in  the  shape  of  notes  or  coin  finds  its 
way  to  the  community;  and  one  man  after  another  who  prospers  in  his 
affairs  comes  to  have  more  or  less  of  it. 

When,  from  such  simple  rudiments  as  a  blacksmith's  smithy,  a  store, 
a  grist  and  carding  mill,  and  a  tavern,  nt  some  crossroads  of  the  olden 
time,  or  a  railway  station  of  the  present,  there  has  grown  up  an  aggrega- 
tion of  such  conceni.-,,  some  of  them  in  a  well-developed  form;  and  when, 
all  round  about,  the  forest  or  prairie  has  been  converted  into  productive 
farms,  sufiicient  money  will  generally  have  been  accumulated  to  give  rise 
to  the  question,  Who  it  to  take  care  of  it?  The  answer  to  this  question 
opens  up  another  clasb  of  service ;  that,  namely,  rendered  by  a  person  who 
hak  ior  generations  been  known  ns  A  BANKER.  This  being  understood, 
let  us  enquire  under  what  conditi<ms  any  man  is  likely  to  undertake  that 
service,  and  how  he  is  to  be  remunerated  for  it? 


Development  or  Mouehn  Banking. 

Putting  aside,  at  present,  considerations  as  to  the  origin  of  corpora- 
tions like  tht;  Bank  of  England  and  the  Bank  of  Scotland,  it  will  be  inter- 
esting to  note  how  the  simple  function  of  taking  care  of  the  spare  money 
of  a  man's  neighbors,  gradually  assumed,  one  after  another,  the  compli- 
cated forms  of  modern  banking. 

The  first  "banker"  (if  he  may  be  so  called  at  this  stage)  is  usually  one 
of  those  prosperous  mrn  of  business  who  are  to  be  found  in  every  com- 
munity, and  whose  store,  warehouse,  or  factory  is  known  to  everybody  in 
it  All  his  surroundings  suggest  that  he  is  a  man  of  means.  He  is  also 
a  man  of  reputation.  He  has  had  money  dealings  with  his  neighbors,  and 
all  respect  and  trust  him.  He  has  money  of  his  own,  and  has  a  strong 
box  or  chest  in  which  to  place  it,  as  everybody  knows.  What  more  nat- 
ural, then,  than  that  he  shall  be  asked  to  take  care  of  the  money  of  his 
neighbors,  as  well  as  his  own? 

Some  of  the  more  cautious  ones  will,  indeed,  never  trust  their  money 
out  of  their  own  possession.  Some  do  not  want  it  to  be  known  that  they 
have  money  at  all.  The  secretive  instinct  prevails  everywhere,  and  is  to 
be  found  even  in  these  days  of  highly  developed  banking.  The  failure  of 
a  banking  corporation  or  of  a  private  banker,  even  now,  iuvariably  drives 
some  people  back  to  the  rudimentary  stage  of  taking  care  of  their  own 
money.     In  this,  however,  they  encounter  another  danger^  viz..  that  their 


ELEMENTA8Y   PBINCIPLES  OF   BANKING.  8 

■nonty  nay  be  ,/<,/«.  The  ln.jority  of  the  people,  however,  in  our  infmnt 
eommunilif.,  .re  willing  to  Iruil  their  money  to  the  care  of  s  wealthy 
neighbor.  In  n>o.t  e«ei,  they  will  eipect  it  to  be  ..  much  .t  their  eom- 
n..nd  ai  if  it  wai  locked  op  in  •  cupboard  of  their  own.  In  aome  caaei 
however,  they  may  consent  to  give  notice  of  withdrawal. 

Tim.,  at  the  very  oulaet,  we  are  confronted  with  two  of  the  principle, 
Ujal  have  alwayi  governed  banking  operation.,  and  which  have  a.  mucli 
force  to-day  a.  they  ever  had.  The  greate.l  banking  corporation,  in  the 
werld  are  not  elempt  from  enquiring  a>  to  money  depo.iled  with  them,  i. 
it  to  be  wiTHDn.iwv  ,t  call,  or  i>  it  lo  u  .u.j.ct  to  notio? 

The  <ir.t  arrangement  i.  at  the  root  of  nearly  all  the  multifariou. 
form,  m  which  banking  i.  carried  on,  for,  a.  will  be  .ub.equently  .hown, 
it  involve,  the  obligation  (1)  of  constant  attendance;  (2)  of  heeDin.  < 
.ulSeient  .tock  of  money  on  hand;  and  (3)  having  a  counter,  apparafn., 
and  officer,  for  the  lran.,ction  of  bu.ine...  .Mo.t  important  of  all,  whilat 
It  neccitate.  the  keeping  of  a  eertmn  .tock  of  money  on  hand,  it  govern. 
the  manner  m  n>kich  all  the  reit  mag  be  employed. 

whe^'lfrr  ""^n  ""''""''■"  "«  »fe-l«Ping  of  money  and  it,  return 
when  called  for  wm  .oon  a«ertain  that  the  commodity  he  ha.  undertaken 
lo  .afeguard  ..  different  in  kind  from  all  other  commoditie,.  It  i.  repre- 
«ntat.ve  of  property  rather  than  property  ifelf;  and  the  obligation,  he 

from  tho.e  which  per.on.  enter  into  with  regard  to  other  property.  If 
for  e«mple,  a  farmer  underUke,  lo  take  care  of  a  neighbor'.  hor.e,  he 
mn.t  retnm  that  very  animal  when  called  upon.  If  .  wharfinger  unde" 
take,  the  care  of  a  merchanf.  iron,  (lour,  or  cotton,  he  deliver,  back  the 
very  good,  he  receive.. 

But  the  care  of  money  i.  governed  by  different  eon.ider.tion..     No 
man  who  deliver,  money  to  a  Unker  for  .afc-keeping  want.  Uck  the 

n'JL  f  ■  °',r'"'  ""*  '"L'^'P'-"''*-  What  he  want,  i.!  not  the  id  ntical 
pi«».  of  gold  or  paper,  but  the  value  of  them  in  current  money,  or  in 

::ZnTJ.z^T  """^  ■"" "'  "■■■""'"«' ""  "■"">'"  *"  •  ■»»" 

I.  „?!i.'!'°c°"  "'"'■'°?  '^"""'  ""  ■^'PO'i'i-g  '""omcr  and  hi,  banker 
.  not  that  of  OWNER  and  .a.lej,  but  of  ch.d.ior  and  dmtoi..  Thi.  be- 
ing .0,  the  banker  i.  not  bound  to  take  care  of  hi.  creditor',  money  a.  a 
wlMTfinger  take,  care  of  hi.  customer',  good..  But  he  i.  bound-nnd  thU 

t*aU   in   an  American    city,     the   Preildent      iiHrip«.iT..  m         ,,  ''  "'Wnwed 

|n  ..^h  „ch  person-.  „„„",.  Z^^t'^^T'i^U'l.^T^^T^rSlll 
such  an  .m.nKn..„,.  -°"<'»P»»  "ow  tht  bank  was  ,„  a^  „„„„  „„a„ 


4  BANKING    AND    COMMERCE. 

ii  the  fint  limple  contract  of  bankitift — to  repay  the  aoMunt  depoiitedt 
or  inch  part  of  It  ai  may  be  rcquirea,  at  the  time  agreed  upon,  whether 
on  demand  or  after  notice. 

In  the  meantime,  a  banker  hafi  the  power,  and  the  law  give*  him  the 
right,  to  dral  with  the  money  at  if  it  were  hli  own;  that  li,  he  hai  the 
power  to  uie  the  money  at  his  plcaaure  fo'  '>"!  purpoie  of  making  a  pnillt 
out  of  it.  The  obligation,  however,  to  pu^  a  depoiitor'i  money  on  de- 
mand, at  the  very  moment  It  li  aiked,  U  of  the  moit  stringent  nature* 
Univenal  cuitom  Iniisti  on  a  rigid  enforcement  of  it.  A  merchant  may 
Atk  for  time  from  hii  creditori;  a  banker  never.  If  he  it  reduced  to  tfaif 
position  he  must  close  his  doors.' 

Common  prudence  therefore  dictates  to  one  who  Is  undertaking  the 
responsibilities  of  a  banker  for  the  first  time,  that  he  shall,  at  the  outset, 
keep  a  considerable  part  of  the  money  lodged  with  him  in  his  own  pos- 
session. 

As  time  elapses,  and  the  conditions  of  the  supply  and  demand  for 
money  gradually  assume  a  more  settled  form,  such  a  banker  will  come  to 
understand  what  portion  of  his  funds  he  must  keep  on  hand,  and  what 
portion  be  can  otherwise  employ. 

Thi  Emplovmkmt  of  a  Bank's  Funds. 

But  the  (]uestion  at  once  arises,  in  what  form  it  may  be  otherwise  em- 
ployed,  consistently  with  the  peculiar  requirements  of  his  business? 
Money  may  be  employed  In  various  ways  to  make  profit,  and  the  mode  of 
employment  will  be  largely  influenced  by  the  consideration  whether  it  if 
a  man's  own,  or  whether  he  is  taking  care  of  it  for  another.  Some  modes 
for  the  employment  of  money  have  been  demonstrated  by  experience 
to  be  suitable  for  a  banker;  others  have  been  equally  proved  by  experi- 
ence to  be  highly  unsuitable. 

(1)  For  example,  a  man  who  has  money  at  his  command  may  buy 
productive  property  with  it,  and  so  obtain  a  reasonable  return  in  rent. 
A  banker,  however,  would  soon  discover  this  to  be  a  very  dangerous  busi- 
ness. He  might  be  compelled  to  close  his  doors  and  wind  up  his  business 
although  in  possession  of  immense  amounts  of  valuable  property. 

(2)  He  can  lend  money  on  mortgage  of  property,  and  draw  the  inter- 
est.    This  is  just  as  unsuitable  for  a  banker  as  the  other;  for  wherever 

■  There  have  been,  however,  n'Mne  curious  exceptions  to  this.  There  was 
formerly  a  little  bank  In  Prince  Edward's  Island,  which  made  no  scruple  of 
telllnc  depositors  at  times  that  they  had  run  out  of  money,  but  would  have  some 
next  week— Just  as  a  storekeeper  would  tell  a  customer  thnt  he  was  out  of  a 
particular  pattern  of  print.  There  was,  however,  some  excuse  for  this  In  the  tact 
that  the  Island  Is  sometimes  cut  off  In  winter  from  the  outside  world  for  a  fort- 
night toother.  This  bank  has  long  disappeared.  But  It  is  rather  odd  that  so 
recently  as  at  the  Louisville  bankers'  convention,  a  Cashier  of  a  National  bank  In 
Georgia,  with  a  c&pltal  of  |ZS,0O0.  should  be  boasting  of  the  arrangements  under 
which  businrsB  was  done  in  his  part  of  the  State.  Our  customers,  he  said,  are 
never  discomposed  when  we  run  out  of  money.  They  are  always  good  natured 
with  us,  and  willing  to  wait  while  we  get  som«! 


ELEMESTaRY  PRINCIHLES  01    BANKING.  j 

inortgiigM  Mitt,  they  run  nlnuiil  InvornWy   for  lonft  ,  irlodi  of  lliuc. 
Etrn  It  ■iibji'd  to  Rradiinl  rrpnymrnl,  the  iirrl™).  ..i  „.  ilow  rtcurnnci-. 

(3)  Wlun  »  cominunity  ii  tullicicnll.  divrlapcil  to  giv.-  riat'  to  tin  in, 
moni-y  run  bt  Invritnl  In  Ktoclii  or  bonilt.  Il  ii  oiKn  o  a  bnnktr  to  da 
thla,  to  ,  rcMonnblc  extent,  m  will  bo  lirrrnflrr  dliruitrd  under  the  head 
of  in'  initnli,  |irovldcd  tht  iloclti  involve  no  linbillty  and  thai  both 
■tocks  ...id  bondq  are  inch  ai  can  be  readily  realiied. 

(4)  He  con  engage  in  commercial  or  manufacturing  bi  ine»«.  Thii  ii 
wholly  improper  for  a  banker  under  modern  condi'ioni,  and  the  banking 
law  of  Canada  very  widely  prohibita  it. 

The  above  are  all  legitini.ite  channel!  of  inveitniei't  for  a  captlaliil. 
aa  aoch. 

Bui  a  banker'i  'mineia  la  governed  by  other  considerations.  II  is  i  ' 
the  very  essence  of  a  banker's  business  to  Incur  IMilUiri.  The  larger  a 
banker's  liabilities  arc— paradoxical  as  it  may  sound— the  more  he  has  of 
the  elements  of  a  flourishing  business.  For  while  a  wealthy  mercantile 
house  will  pride  itself  on  having  no  liabilities  at  all,  the  pride  of  a  banker 
i.  in  the  client  to  which  his  liabilities  exceed  his  capital;  or,  in  plain  lerma, 
in  the  amount  of  his  deposits  and  note  issu-.  His  creditors  may  be 
numbered  by  thousanda,  and  the  total  amount  he  owes  them  may,  iii  the 
'gff^',  'f.  ten  times  the  amount  of  his  capital  or  more.  He,  there- 
fore, as  a  simple  matter  of  prudence,  will  at  all  times  so  shape  his  busi- 
ness as  to  be  able  to  fulfil  his  daily  obligations.* 

But  how  does  he  accomplish  this.'  In  every  community,  where  busi- 
ness has  become  developed,  there  will  invariably  be  found,  in  addition  to 
those  WHO  have  more  money  than  they  need,  another  class  of  persons,  who 
have  less  than  >Vy  want.  Merchants,  manufacturers,  miners  a.  d  trans- 
mitters of  eommodu:  ,,  no  matter  in  how  simple  a  form  their  business  is 
carried  on,  need,  as  a  rule,  more  money  than  they  have  of  their  own.  And 
If  there  is,  in  that  community,  a  person  who  has  spare  money  under 
hi>  control,  he  will  certainly  be  interviewed  by  one  or  more  of  this  class 
with  r>ropo»als  for  the  use  of  a  portion  of  that  money.  Thus  we  arrive  at 
the  first  rnpprorhement  between  Banking  and  Commerce. 

That  bankers  should  listen  to  overtures  from  this  class  of  the  com- 
munity IS  natural;  and  this  for  several  reasons.  Their  business,  in  the 
very  nature  of  things,  is  in  a  constant  condition  of  flux.  It  is  active  at 
one  period,  a,id  dull  at  another;  largely  arising  from  the  changing  seasons 
of  the  year,  and  therefore  inevitable,  and  such  as  can  be  calculated  on. 
The  world  s  eonimcre.-  is  conditioned  by  the  law,  which  govern  its  prod- 
ucts. ■These  products  come  largly  (but  not  wholly)  in  the  shape  of 
yearly  harvests;  some  of  food,  some  of  material,  fo'r  clothing,  some  of 
appliances  for  shelter,  some  of  materials  for  producing  warmth  or  power. 
*  In   the  ■tatomi'ntB  thai   loint  ttiuic  »mn«-j   i.i   c     i     j 


<  BANKING    AND    COMMERCE. 

Stocks  of  jrrrat  maipiituclr  mi»t  br  hrld  at  one  period,  to  be  lueceeded  hj 
«  1ar|p>ly  dimininhrd  volume  im  the  eoniumptlon  of  the  world  pngrftet. 
Thete  world-lianrstK,  thrrrforr,  require  at  one  lime  Inrge  amoiinti  of 
money  for  the  pui)>oie  of  ptirrhailng,  itoring  nnd  prepnring  them  for 
u*ei  eonvenrly,  nn  inimenie  rolnme  of  monp«  !•  irt  fri-r  when  purehas- 
lnf(  ii  lurrerded  by  renllintlon.  All  ffoodi,  whether  material  product* 
or  manufactured  nrticlei,  are  ultimately  converted  into  money  or  book 
entries  or  pnper  representing  money.  As  stocks  of  goodn  increase,  the 
stock*  of  money  (using  that  word  in  a  broad  sense)  diminish,  and  «« 
stocks  of  goods  decrease,  those  of  money  increase.' 

RtLAFioNs  Betwken  ymb   Rankkii  and  THB  MnCHAITT. 

This  being  the  case.  It  can  easily  be  seen  that  the  Iwinker  and  the  mer- 
chant have  11  natural  relntlon  to  each  other.  The  one  deals  with  a  fluctuat- 
ing supply  of  money,  the  other  with  a  fluctuating  quantity  of  goods. 
The  banker  must  perforce  employ  his  money  in  fluctuating  transactions. 
The  merehant  desires  fluctuating  supplies  of  money  to  meet  his  require- 
ments. There  is  thercl'ore  perfect  correspondence  between  them.  I'he 
business  of  both  Is,  to  con""  *  how  these  fluctuation*  arc  likely  to  opeiate 
In  the  spheres  of  their  busines*. 

The  merchant,  naturally,  moves  first.  The  natural  order  is  for  the 
borrower  to  approach  the  lender.  (Cases,  indeed,  sometimes  arise,  in  the 
stress  of  conipetition,  in  which  the  order  is  reversed,  but  the  results  are 
usually  injurious  to  both.)  The  merchant  approaches  the  banker,  stating 
that  the  time  has  come  for  him  to  buy  the  productions  of  the  district;  the 
lumberer,  that  he  Is  about  to  send  his  gangs  into  the  woods;  thj  fisherman, 
that  his  fleet  is  ready  to  begin  operations;  the  manufacturer,  that  the 
ycar'h  supply  of  wool,  grain,  iron  or  raw  cotton  is  arriving.  There  are 
•s  numerous  varieties  of  such  application*  a*  there  are  of  commercial 
•vocation*;  but  In  every  one  of  them  there  i*  a  statement  of  a  want; 
i.  e.,  want  of  monej/.  That  want  Is  exactly  the  conntern.-irt  of  a  want  on 
the  part  of  the  banker.  He  has  money  for  which  he  wants  profitable 
employment.  Thus  both  are  brought  within  the  operation  of  that  all- 
embracing  law  of  SUPPLY  and  demand,  which  governs  the  world'*  transac- 
tions in  commerce  and  finance  as  surely  as  the  laws  of  gravitation  gDvem 
the  material  universe  The  want  being  opened  up,  and  the  application 
made,  it  i*  for  the  banker  to  determine,  having  understood  for  what 
length  of  time  advances  are  wanted,  what  tecuriig  is  ofl'ered,  and  what  is 
the  pOMtlion  of  the  penon  proposing  to  Itorrow,  whether  he  can  (1)  make 
the  advance,  (2)  oiien  the  credit,  or  (S)  discount  the  paper.     These  are 

B  Thf»  \b  the  natural  law.  but  it  la  affe<  ^ed  by  numb«iit  of  eounteractlr*  el""- 
cumstanrMi.  the  omM-cHrrrBtw  nt  traflo  an^l  nf  fiTif»TJo^,  BO  to  gpr'ttk.  Tli?  ope^ratton 
thHrefore  of  Ihla  natural  law  it  not  always  ensy  to  trac«.  But  it  la  a  law  not- 
wlthsUndlng.  And,  as  a  part  of  this  law,  all  stocks  of  aooda  bear  Intereat— a 
tact  often  lost  slsht  of. 


ELEMENTARY   PRINCIPLES  OF   BANKING. 


the  three  fundamrntal  fomii  of  thr  drnling  of  n  banktr  with  the  buiinru 
comniuiit^. 

All  drTrlopmrnts  of  buiinrw  may  at  tlmrt  nlTord  outlet!  for  the  money 
•  bukkcr  dciirei  to  employ.  They  are  legitimate  ipherei  for  utiUilng  hli 
fundi,  alwayi  on  the  luppoiltlon,  netcr  to  be  forgotten,  that  atich  loani 
•hall  be  temporary,  repayable  at  a  fixed  time  which  can  be  depended 
upon,  that  they  ihall  be  allowable  by  law,  and  within  the  legal  borrowing 
powen  of  the  corporation,  if  the  borrower  i«  luch.  And  It  ii  not  too  much 
to  lay  that  it  depends  upon  the  banker'i  aniweri  whether  the  wheeli  of 
the  machinery  of  commerce  In  his  district  are  to  begin  to  revolve  for 
another  icaaon  or  not.  Naturally,  hli  deiire  li  that  they  ihall;  for  upon 
thii  a  thousand  other  thingi*  depend,  in  wlilrb  no  one  i«  more  interested 
than  the  banker  himself. 

There  is  this,  however,  further  to  be  said,  that  n  ^frrnt  banking  cor- 
poration may  at  times,  and  in  certain  circumitanci'S,  employ  a  portion  of 
its  resources  both  safely  and  profitably  in  other  spheres  than  commerce. 
They  may  assist  the  financial  operations  of  t*^L>  Government,  or  make  ad- 
vances to  municipalities,  or  assist  in  developing  enterprises  not  strictly 
commercial,  yet  which  have  a  close  relation  to  commerce — such  as  rail- 
ways, steamboat  lines,  gas  and  electric  corporations,  etc.  All  this  will  b« 
fuUy  treated  of  in  succeeding  chapters. 


I  ,* 


li 


I 


CHAPTER  11. 

THE  ELEMENTABY  PRINOIPLES  07  OOMBIEBGE  IN  CON- 
NECTION WITH  BANiONa. 

Beoinninos  op  Commerce  in  North  America — Development  of  thi 
Export  and  Impo?it  Trade — Co-operation  of  the  Banker  in  thm 
Carryinq  on  op  Trade. 

IT  has  been  shown  in  a  former  chapter  how  naturally  the  business  of  a 
bnnker  is  connected  with  that  of  a  merchant.    Therein  arc  roughly 
sketched  the  elementary  features  of  a,  banker's  buslneas,  as  custodian 
of  the  money  of  the  community  in  which  he  lives,  and  the  source  whence 
the  temporary  wants  of  the  commercial  portiun  of  that  community  oiay 
be  supplied. 

As  this  is  a  treatise,  not  solely  respecting  banking,  but  banking  and 
commrrce,  it  is  reasonable  to  consider  also  the  elementary  principles  of 
commercial  business,  including  in  that  term  not  merely  those  who  buy 
goods  and  sell  them,  but  those  who  in  various  ways  produce  the  goods 
required  to  be  sold. 

Beoinninrs  op  Commerce  in  North  America. 

Going  back,  as  some  persons  now  living  can  do,  to  the  earliest  devel- 
opments of  commerce,  in  certain  parts  of  this  continent,  the  time  can  be 
recalled  when  its  sole  production  was  in  the  shape  of  the  skins  of  fur-clad 
animals.  Before  the  time  of  farms  and  mills  and  crops  and  mines,  wai 
the  lime  when  the  trapper,  or  hunter,  penetrated  to  remote  depths  in  the 
forest,  or  to  unknown  wastes  of  the  prairie,  captsring  the  animals,  whose 
fur  was  so  highly  prized  by  the  civilized  world,  and  bringing  the  skins 
for  sale  to  a  central  depot.  There  still  fluurishes,  on  both  sides  of  the 
Atlantic,  the  great  Trading  Corporation,  which  has  carried  on  this  traffic, 
without  interruption,  for  more  than  two  centuries,  over  half  a  continent, 
whose  centres  of  trade,  generally  called  "forts,"  have,  in  some  instances, 
developed  into  important  towns  and  cities  of  the  present  day.  In  these 
forts,  the  Hudson  Bay  Company  received  the  furs  from  the  Indian  tribes 
around  them,  and  gave  suitable  goods  in  exchange,  on  such  equitable 
terms  that  the  Grcnt  Company  came  to  be  looked  upon  as  the  embodiment 
of  all  thit  was  just  and  honorable,  as  well  as  rich  and  powerful.  This 
reputation,  first  acquired  many  generations  ago,  the  Hudson  Bay  Com- 
pany and  its  agents  have  never  lost. 

There  were  similar  operations  in  the  older  parts  of  French  Canada, 
New  England  and  New  York,  and  also  in  the  remote  regions  of  the  Far 
West  of  the  United  States. 

These  were  the  first  beginnings  of  commerce  in  North  America,  and  a 


ELEMENTARY   PRINCIPLES  OF  COMMERCE.  9 

legilimole  development  il  wns;  nnmcly,  the  gnlhering  together  from  re- 
mote regions  of  »hnt  was  useful  to  mankind,  and  bringing  back  in  ei- 
ehange  such  products  of  other  parts  of  the  world  as  were  suitable  to  the 
wants  of  its  inhabitants. 

Developjievt  of  the  Export  and  Impost  Trade. 
But  the  simple  trade  of  early  days  on  this  Northern  Continent  has 
now  developed,  under  modern  forms  of  division  of  labor,  into  various  great 
lines  of  export  and  import  trade.  Instead  of  furs  as  the  sole  product  for 
export,  we  now  have  cotton,  p-ain  and  flour,  cattle  and  cheese,  pork  and  lish, 
timber,  iron,  and  gold,  as  well  as  many  varieties  of  manufactured  articles. 
And  instead  of  simple  imports  of  beads  and  ammunition,  we  have  laid  the 
whole  world  under  tribute  for  the  supply  of  our  wants,  and  built  ware- 
houses and  stores  in  our  cities  filled  with  every  possible  requirement  of 
modem  comfort  and  luxury.  For  the  great  Creator  of  the  world  has  so 
ordered  that  the  different  parts  of  the  earth  shall  have  productions  com- 
plementary to  each  other.  The  East  produces  what  the  West  needs,  and 
the  West  supplies  the  wants  of  the  East.  The  South  produces  one  set 
of  commodities,  the  North  another,  the  interchange  of  which  is  of  mutual 
advantage.  A  perfect  eiempliUcation  of  this  may  be  found,  though  on  a 
small  scale,  in  the  simplest  store  of  any  Canadian  town  or  village.  In 
such  a  place  are  gathered  for  sale  the  products  of  almost  every  country 
under  the  sun.  China  has  contributed  tea,  Java  sugar,  the  West  Indies 
colTee  and  fruits.  On  its  shelves  are  to  be  found  spices  from  the  Eastern 
Archipelago,  and  currants  from  the  .Mediterranean.  There  are  woolen 
goods  made  from  row  materials  supplied  by  flocks  of  sheep  in  Australia, 
cotton  goods  from  the  produce  of  plantations  in  the  Southern  States  of 
America.  The  factories  of  Great  Britain,  France  and  Germany  have 
contributed  their  quota,  as  well  as  those  of  the  United  States  and  Canada. 
There  is,  in  truth,  scarcely  a  country  or  climate  in  the  world  which  hai 
not  taken  part  in  furnishing  the  shelves  of  even  a  simple  Canadion  vil- 
lage store. 

A  remarkable  thing,  truly;  and  it  is  worth  considering  how  this  has 
come  to  be.  Evidently,  it  cannot  have  come  to  pass  without  a  combination 
of  mercantile  operations  on  the  part  of  numbers  of  individuals,  many  of 
whom  had  no  idea  what  the  final  result  would  be,  and  also  just  as  compli- 
cated a  machinery  for  the  supply  of  mo»r.»  during  the  process. 

Let  a  typical  example  be  taken.  How,  for  example,  has  that  chest  of 
tea  come  to  find  its  way  to  a  place  so  remote  from  that  of  its  growth?  The 
cultivator  of  tea-plants  in  the  interior  of  China  cannot  have  any  idea  of 
the  persons  who  are  to  consume  his  jiroducc.  But  these  small  parcels  of 
tea,  when  once  produced  by  the  cultivator,  become  almost  immediately 
subject  to  the  operations  of  Commerce.  The  country  trader  of  an  inte- 
nor  province  mu«es  his  appeornnce,  and  purchases  the  products  of  a  few 
plantations  around  him.  His  knowledge,  however,  is  limited,  and  so  il 
the  extent  of  his  operations.     He  passes  the  tea  on  to  a  trader  of  larger 


BANKING    AND    COMMERCE. 


il 


capacity  in  a  commeTcial  centre.  Even  he  has  little  comprehension  of 
the  distances  the  chests  will  have  to  traverse  before  reaching  their  final 
destination;  and  little  indeed  can  these  traders  comprehend  how  many 
agencies,,  both  of  commerce  and  banking,  have  to  be  combined  before  the 
products  of  those  plantations  can  make  their  appearance  on  the  other 
side  of  the  world;  to  be  sold,  and  finally  consumed,  by  people  of  whom 
the  Chinese  lea-grower  and  merchant  have  no  more  idea  than  they  have 
of  the  inhabitants  of  the  moon. 

The  Chinese  tea-planter  never  writes  a  letter  to  the  Canadian  store* 
keeper,  advising  him  that  he  is  growing  a  number  of  choice  tea-plants, 
and  asking  whether  he  will  buy  the  leaves  when  ready.  But,  if  he  did, 
and  the  storekeeper  listened  to  his  proposal  (let  us  imagine  this  for  a 
moment),  some  questions  would  arise,  one  of  which  would  be,  How  is  the 
tea  to  be  delivered  f  and  another,  How  is  it  to  be  paid  for  ? 

The  producer  and  possible  customer  re  thousands  of  miles  apart; 
separated  by  vast  stretches  of  sea  and  land,  how,  then,  can  they  trade 
together?  A  very  pertinent  question;  and  it  would  pass  the  wit  of  any 
of  the  declaimers  against  middle-men  to  answer  it,  except  in  one  way. 
Thejf  mutt  be  brought  together  by  middle-men;  to  tpeak  in  language  be- 
coming the  tubjeci,  by  the  merchant,*  who  will  conduct  his  operations  ac- 
cordingly. He  will  inevitably  follow  also  the  law  of  "buying  in  the 
cheapest  market,  and  selling  in  the  flearest,"  for  he  could  do  no  business 
if  he  did  not.  This  law  is  as  beneficent  as  it  is  inevitable;  inasmuch  as 
goods  are  cheap  wherever  ihejf  are  redundant;  and  dear  where  they  are 
tearce.    At  every  stage  of  these  complicated  processes,  the  dankie  finds 

«  For  th«  sake  of  argument,  let  ua  auppose  that  some  tea-rlanter  determineg  to 
diBp«iiie  with  intermftdlarlei  and  to  so.  In  person,  to  the  consumer  of  hia  product*. 
To  enable  him  to  do  this,  he  will  probably  borrow  money  from  one  of  the  numeroua 
bankers  who  abound  In  the  Interior  of  China.  The  project  would  certainly  And 
favor  with  thoae  who  Imagine  the  merchant  to  be  the  natui-al  enemy  of  the  pro- 
ducer, and  who  sometimes  Initiate  arrangements  with  a  view  to  dispensing  with 
him  altogether,  by  which— to  say  truth— they  generally  lose  money.  In  pursuance 
of  this  Idea,  the  planter  will  proceed  with  his  tea  to  the  nearest  river,  or  canal- 
down  which  he  voyages,  week  after  week,  to  a  seaport- with  his  tea.  He  then 
crones  the  ocean,  lands  on  this  continent,  pays  customs  duties,  and  travels  thou- 
sands of  miles,  arriving  at  last  In  a  commercial  city  of  Canada  or  the  United 
States.    Thence  he  proceeds  to  And  his  customer,  and  dispose  of  his  product. 

But  Is  It  not  evident  that  the  expenaes  of  »uch  a  journey  as  this  would  more 
than  swallow  up  the  whole  value  of  his  tea.  and  probably  leave  him  stranded  In  a 
foreign  city,  unable  to  return  home?  For  the  few  chests  of  tea.  which  he  had  been 
able  to  produce,  would  have  had  to  bear  the  whole  expenses  of  his  Journey. 

This  may  seem  an  absurd  Illustration,  but  It  represents  what  would  he  inevi- 
table. In  case  the  theory  of  dispensing  with  "middle-men"  were  fully  carried  out. 

If  the  Ignorant  prejudice  against  Intermediaries  were  to  prevail  generally,  al- 
most every  farmer  on  this  continent  would  have  to  undertake  some  such  a  Journey 
every  year. 

The  first  Journey  of  the  kind  would  undeceive  him.  and  compel  him  to  ac- 
knowledge that  the  merchant  la  as  necessary  a  factor  In  business  as  the  pro- 
ducer. For  It  has  been  demonstrated  by  experience,  that  even  If  a  numtwr  of 
formers  pod  thtir  products,  and  appoint  an  agent  to  sell  for  them,  his  remunera- 
tion, on  the  average,  will  be  as  much  as  the  profits  of  a  merchant,  and  their  risk 
far  greater. 


EI.EMENTAHY   PRINCIPLES  OF  COMMERCE.  11 

hit  plnce,  and  renders  nssijlancc.  Almost  from  the  time  when  the  seed 
is  sown,  the  mine  opened,  the  trees  felled,  the  fishing  fleet  sails,  and  all 
through  the  journeys  taken,  either  by  row  materials  or  finished  products, 
to  their  destination,  the  aid  of  the  banker  it  reqt-red  and  rendered. 

CO-OPEPATION  OF  Till  BaNKER  IN  THE  CarrvinO  ON  OF  TrAOI. 

Throughout  the  whole  processes  of  trade,  the  banker  co-operates  by 
supplying  money  to  those  who  carry  it  on  and  also  by  transporting  money, 
from  place  to  plnce,  as  needed. 

The  bankers  who  lake  part  in  the  work  ore  of  various  grades.  Some 
of  them,  indeed,  take  only  a  small  part:  passing  it  on  to  others  of  a  larger 
calibre  and  with  wider  connections.  The  largest  class  bankers  not  only 
supply  money  at  first  hand  to  the  men  who  purchase  the  products  of  the 
planter  and  the  farmers,  but  they  also  open  credits  for  the  lumberer  and 
the  foreign  merchant,  give  cash  for  the  bills  drawn  by  the  exporter  on 
foreign  correspondents,  lend  money  ^o  the  importer  to  pay  customs  duties 
and  finally  assist  in  the  distribution  of  finished  products,  by  discounting 
the  notes  given  to  him  by  his  customers. 

What  are  the  methods  and  principles  under  which  all  this  is  done; 
which  of  them  are  sound,  which  of  them  conduce  to  success,  and  which 
lead  to  failure  or  disaster,  will  be  fully  opened  up  in  subsequent  papers. 


IF 

!il 


CHAPTER  III. 

FtniTHEB  PBINCIPLEB  OF  BANKING,  AND  DEVELOPBIENT 
OF  PRIVATE  BANKING  IN  ENOLAND. 

Oeioin  and  Meaning  op  the  Wohd  "Bank" — The  Dblbqation  or  a 
Banker's  Powers — Development  op  Private  Banking  in  England 
— Considerations  Governing  Private  Banking. 

A  BANKER  who  has  opened  an  office  for  businesa  will  not  have  pro- 
ceeded far  before  perceiving  that  his  occupation  is  a  far  more  e«- 
acting  one  thai,  that  of  a  capitalist  or  money-lender.  The  obliga- 
tion to  pay  variable  sums  nf  money  on  demand  involves  another  obligation, 
viz.,  that  he,  or  some  one  acting  for  him,  shall  always  be  on  the  spot  to 
answer  the  demand  mad  If  the  banker,  before  entering  upon  the  busi* 
ness  of  banking,  propyl/  so  called,  has  been  in  the  habit  of  lending 
money,  and  has  become  known  ns  a  money-lender,  he  will  have  had  appli- 
cations in  abundance,  but  he  would  be  under  no  obligation  to  be  on  the 
spot  to  answer  them.  He  could  intermit  his  business  to  pursue  other 
engagements.,  yet  no  one  would  have  ground  of  complaint  against  him. 
Herein  is  precisely  the  point  of  difference  between  a  money-lender  and  » 
banker — a  difference  that  is  frequently  not  well  understood,  and  the  fail- 
ure to  imderstand  which  has  led  to  confusion  both  in  thinking  and  in- 
writing. 

Origin  and  Meaning  of  the  Word  "Bank." 

It  is  of  the  essence  of  a  banker's  business  that  he  shall  be  in  a  posi- 
tion>  at  all  times,  to  pay  money  on  demand  to  those  who  have  the  right  to 
demand  it.  This  necessity  is  the  reason  why  a  banker  finds  it  necessary 
to  have  what  is  nniversally  known  as  a  counter;  an  elevated  table,  in  fact, 
of  proper  height  for  convenience  of  counting.  If  we  pursue  the  idea  we 
shall  arrive  at  the  genesis  of  the  word  bank  in  English,  or  bunco  in  Italian,. 
ss  applied  to  money  matters.^ 

But  there  is  a  further  idea  connected  with  this  word.  The  word  in 
common  usage  in  invariably  connected  with  the  idea  of  protection — pro- 
tection, for  example,  against  floods,  as  are  the  levees  of  the  Mississippi, 
or  against  the  tides,  as  in  Hclland  and  Nova  Scotia.  Av^  the  idea  of 
protection  is  strictly  applicable  to  a  banker's  counting-tal   >  or  counter, 

T  The  word  bank  In  Its  original  meaning,  as  Is  well  known.  Indicates  nothing 
but  a  raised  platform,  generally  of  earth,  behind  or  before  which  persons  can  stand. 
The  word  thus  came  to  be  applied  to  the  elevated  table,  or  platform,  behind  which 
the  banker,  or  his  substitute,  stood  to  receive  or  pay  money.  This  elevated  table 
is  the  real  "bank."  and  the  person  who  stand*  behind  it  li  a  banker  or  hfs  rtp- 
reaentatlv*. 

IX 


FURTHER   PRINCIPLES  OF   BANKING. 


la 


BO  made,  ex  neceaaiia,  ns  to  protect  the  banker  hitnselt  r  the  purpose 

of  mere  counting,  a  table  in  the  middle  of  a  room  woiim  answer.  Bot  a 
banker  must  have  n  store  of  money  beside  him,  and  finding  it  necessary 
to  protect  that  store,  needs  to  arrange  his  counting-table  so  he  can  stand 
behind  it,  and  do  business  in  security.  Indeed,  it  is  customary  on  this 
side  of  the  Atlantic,  ns  every  customer  of  a  bank  knows,  to  protect  the 
counter  itself  by  screens. 

In  conducting  the  business  of  banking,  it  is  necessary  to  fix  certain 
hourt  when  demands  for  money  can  legally  be  made.  -s  to  these  hours, 
a  private  banker  tan  fix  i\um  for  himself;  in  which  case  his  customers, 
or  the  public,  being  duly  notified,  will  be  debarred  from  making  legal 
demands  at  any  other  time.  This  is  part  of  his  contract  with  them.  But 
usually,  as  the  business  of  banking  is  developed,  the  hours  of  business 
become  settled  by  custom,  to  which  all  conform  for  the  sake  of  conveni- 
ence. If  the  bank  is  a  corporation  its  hours  of  business  are  usually  stated 
in  its  by-laws,  and  advertised,  especially  in  country  districts,  where  per- 
sons have  to  travel  far  at  times  to  rer  \i  the  banker  at  all.  The  only  way 
in  which,  as  a  rule,  the  law  intervenes,  is  to  declare  what  days  shall  be 
■considered  as  holidays  on  which  no  demand  can  be  made  at  ail. 

Thr  Delkoatiox  of  a  Banker's  Powers. 

The  necessity  of  being  always  present  to  answer  demands  soon  im- 
poses on  the  banker  a  serious  question,  vix.,  to  whom  can  he  delegate  the 
power  to  answer  demands  in  his  absence?  For  absent,  at  times,  he  must 
be.  Even  if  he  can  trust  a  clerk  to  answer  the  demands  of  depositors 
from  hour  to  hour,  the  safe  custody  of  his  stock  of  money  or  securities 
is  a  matter  of  the  first  consequence,  demanding  the  attention  of  more 
than  one  person.  But  even  the  function  of  lending  money  cannot  be 
intermitted  by  a  banker,  ns  it  can  by  a  mere  money-lender.  With  his 
open  door  and  open  counter,  lie  must  be  prepared  either  in  person  or  by 
deputy  to  answer  the  demands  of  borrowers  as  well  as  of  depositors. 
The  commercial  customers  of  a  hank  ha\'e  obligations  of  their  own  to 
meet  day  by  day,  and  in  these  days  depend  upon  arrangements  with  their 
bankers  to  enable  them  to  meet  these  requirements.  It  is  therefore  neces- 
sary for  a  banker  to  have  some  person  in  his  office  whom  he  can  trust  to 
exercise  this  function  of  lending  money  in  his  absence.  But  what  posi- 
tion is  such  a  person  to  occupy? 

This  question,  in  former  years,  was  repeatedly  asked  by  the  bankers 
of  England,  and  it  was  generally  and  finally  answered  the  same  way. 
When  sufh  a  person  was  found,  and  he  was  generally  some  clerk  cr  officer 
of  their  own,  whose  qualities  of  shrewdness  and  sound  judgment  had 
been  obseried  in  course  of  business,  he  was  at  first  entrusted  with  power 
of  attorney  and  placed  in  the  position  of  managing  elerk. 

But  it  would  soon  occur  to  a  shrewd  banker,  that  such  an  officer  might 
build  up  an  interest  and  connection  of  his  own,  which  interest,  so  long  as 
there  was  no  closer  connection  between  them  than  employer  and  employed, 


14 


BANKING    AND    COMMERCE. 


might  in  time  become  ■onicthing  distinct  from  his  own.  It  might,  in  fact, 
be  used  to  his  dlsndvantage  and  loss.  This  irould  naturally  lead  to  the 
coniiderntion  whether  it  was  not  desirable  to  bind  such  a  capable  officer 
to  hitnaelf  by  taking  him  into  partnership.  By  this  means  all  thoughtu 
of  rivalry,  or  separate  interest,  would  be  banished,  and  such  a  close  iden- 
tity be  established  that  the  banker  and  his  confidential  officer  would  no 
longer  be  two  persons,  but,  for  all  banking  purposes,  only  one. 

Development   of   Private   Banking  in   England.     * 

Through  this  process  of  what  may  be  cnllrd  banking  evolution,  nearly 
all  the  grea*'  banking  firms  of  England  have  passed.  The  clever  and 
shrewd  accountant  has  been  promoted  tn  the  mnnagcmml  of  the  office, 
taken  into  partnership,  accumulated  wealth,  and  has  finally  become  the 
head  and  principal  of  the  concern  which  he  once  served.  And  his  name, 
once  utterly  unknown,  is  now  in  a  prominent  place  in  the  firm's  title,  and 
figures  in  banking  and  commercial  directories  so  prominently  as  to  be 
known  all  over  England. 

It  is  thus,  probably,  that  the  banking  firms  of  England  came  to  have 
such  long  titles  as  many  of  them  ha^  until  modern  developments  set  in. 
Thus,  for  example,  it  was  with  Barclay,  Bevan,  Triton,  Trella  &  Co.,  Glyn 
Mills,  Halifax  &  Co.,  Williams,  Oeacon,  Labouchere  &  Co.,  Smith,  Payne 
&  Smiths,  and  other  firms  of  like  character.  And  so  great  a  weight  did 
the  more  prominent  of  these  names  carry,  that  they  have  been  generally 
retained  in  the  corporate  name  of  the  joint-stock  company  into  which  thej 
have  btcn  merged." 

But  in  the  serious  step  of  taking  in  a  partner,  either  a  merchant  or  a 
banker  will  have  regard  to  many  circumstances.  Perfect  honesty  and 
reliability  are  the  primary  considerations ;  after  that  come  uusiness  knowl- 
edge, prudence  and  industry,  and  a  due  measure  of  caution  and  enter- 
prise. Along  with  all  these  a  merchant  who  consults  his  own  comfort 
will  take  care  to  have  a  man  of  reasonably  good  temper  and  common 
sense  about  him.  A  quarrelsome,  cross-grained  man,  one  who  cannot  give 
and  t-tke,  a  man  so  conceited  that  he  cannot  fancy  any  other  person  knows 
anything,  no  matter  how  clever  he  may  be,  should  be  left  to  plow  his 
own  furrow.,  but  never  entrusted  with  a  partnership. 

In  a  business  like  banking,  wh^re  the  interests  of  so  many  persons 
depend  on  a  successful  continuance  of  the  business,  it  is  of  the  first  im- 
portance to  provide  for  the  future.    The  business  of  a  bank  carried  on  by 


8  Moat  of  this  haa  as  close  an  application  to  commercial  partnerehlpn  as  to 
partnership  In  banking.  It  Is  well  known  that  many  of  the  men  who  ar-^  now 
heads  of  great  commercial  Hrms  commenced  their  career  In  the  "house"  as  clerks. 
While  doing  their  own  special  work  faithfully,  they  dlsplujcd  ability  for  some- 
thing beyond  It — ability  not  only  for  keeping  books,  but  for  suggesting  Improve- 
ments; capacity  not  only  as  salesmen,  but  shrewdness  in  discrlmlnati^ig  between 
cuetomers;  ability  not  only  to  hanflip  sckuIp,  hut  capacity  for  underst-indlng  what 
goods  would  suit  the  customers.  They  displayed.  In  fact,  that  quality  that  Is  so 
dUItcult  to  defln*,  but  so  well  understood,   vis.,  business  ability. 


FURTHER   PfllNTIPLES  OF   BANKING. 


private  individuals  mijilit,  in  tlu-  .iliscncf  of  such  arrangements,  be  brought 
to  an  entire  stop  by  the  dtntli  or  wittidriiwal  of  a  singk  partner.  Such 
a  stoppage,  in  certain  cnst-s,  mi^lit  lliro«-  the  biininess  of  a  whole  district 
into  confusion.  Tliesc  contingfncirs  in  fornier  days  were  necessarily  pro- 
vided for  by  arrangtnunts  Iietwren  the  pnrtntra  themselves,  and  the  best 
legal  skill  'n  England  wns  drawn  upon  to  prepare  deeds  that  would  ensure 
a  continuance  of  business.  That  this  has  been  successfully  done  is  shown 
by  the  record  of  hanking  firms  that  have  h.id  an  unbroken  career  for 
upwards  of  two  centuries,  and  are  in  vigorous  life  at  this  day.  In  such 
arrangements  none  are  so  much  interested  as  junior  partners,  for  they, 
obviously,  have  most  to  fear  from  an  interruption  of  the  business. 

Private  banking  on  this  continent  has  never  occupied  the  high  position 
it  attained  in  England.  The  reason  for  the  extraordinary  development 
of  hanking  by  private  firms  in  England  «as  the  jealously-guarded  monop- 
oly of  the  Bank  of  England.  In  the  United  States,  however,  and  in  Can- 
ada, as  in  .Scotland,  the  development  of  banking  by  joint-stock  compa- 
nies has  always  been  unrestricted  by  monopoly;  and  even  the  very  ap- 
pearance of  it,  in  the  case  of  the  United  Stales  Bank,  was  ruthlessly 
stamped  out  by  a  Democratic  President. 

But  though  the  banking  business  of  towns  and  cities  on  this  continent 
has  been  almost  wholly  conducted  by  joint-stock  companies,  a  consider- 
able sphere  has  existed  (at  any  rate,  until  late  years)  for  the  operations 
of  private  banking  in  the  thriving  villages  and  smaller  towns  of  the 
country. 

The  humorous  story  of  David  Harum,  which,  as  is  well  known,  was 
written  by  n  bank  officer,  probably  gives  a  fair  picture  of  the  kind  of 
persons  that  many  of  them  were,  and  the  kind  of  business  they  did,  in  the 
village  communities  of  the  United  States. 

Private  hanking  at  one  time  had  obtained  a  considerable  development 
in  Canada,  and  that  for  a  good  reason  in  the  circumstances  of  the  coun- 
try, largely  agricultural  as  the  Provinces  of  Canada  are,  the  towns  and 
cities  generally  at  considerable  distances  from  each  other,  and  between 
them  having  grown  up  vill.iges  of  fair  population,  in  which  are  to  be 
found  some  of  the  features  of  town  life.  Such  villages  did  not  at  one  time 
afford  sufficient  business  to  make  it  profitable  for  joint-stock  banks  to  be 
established  in  them,  for  their  methods  and  machinery  are  costly,  and  it  is 
contrary  to  law  for  them  to  undertake  any  other  business.  ,  But  where  a 
joint-stock  bank  would  scarcely  pay  expenses,  a  private  banker  might 
make  a  respectable  living;  for  in  addition  to  banking  he  could  undertake, 
for  example,  to  effect  insurances,  both  fire  and  life.  He  could  assist  in 
drawing  up  the  simpler  kinds  of  legal  instruments,  and  do  the  same  busi- 
ness as  is  done  by  professional  accountf.nts.  This  state  of  thing,  how- 
ever, is  gr^tdually  passing  away.  By  tiie  development  of  the  country, 
many  former  tillages  are  becoming  towns,  and  are  affording  sufficient 
business  to  enable  one  or  more  brnnchos  of  joint-stock  banks  to  be  estab- 
lished in  them.     Even  in  this  case,  however,  a  private  banking  firm  may 


16 


BANKING    AND    COMMERCE. 


maintain  iti  position,  if  iti  partner!  are  known  to  have  undoubted  meafu, 
and  hnvc  »o  conducted  the  buiineu  aa  to  gain  and  keep  the  confidence 
of  the  community'. 

CONIIDERATIONf    GOTHNINO    PRIVATE    BaNKIHO. 

Before  entering  on  the  Inrger  class  of  questions  that  appertain  to 
joint-stork  banking,  it  may  be  well  to  note  briefly  the  considerations  that 
should  govern  a  private  banker  in  the  conduct  of  his  business: 

(1)  He  should  certainly  not  carry  on  any  mfrcantile  business,  for  In 
•o  doing  he  might  be  in  competition  with  his  own  customers. 

(S)  He  should  undoubtedly  be  possessed  of  a  sufficient  amount  of 

CAPITAL. 

Every  private  banker,  in  the  nature  of  things,  should  have  a  fund  out 
of  which  he  can  meet  the  losses  Mrhich  are  incidental  to  the  lending  of 
money.  For  if  he  cannot  meet  them  out  of  his  capital,  he  must  draw 
upon  the  money  of  his  depositors  for  the  purpose,  to  their  loss. 

It  must  be  remembered  that  the  customers  of  a  private  banker  are 
almost  invariably  persons  of  small  means,  who  have  deposited  money 
with  him  which  they  cannot  afford  to  lose.  A  village  community,  as  a 
rule,  is  not  distressed  or  embarrassed  by  the  failure  of  one  of  its  store- 
keepers; but  it  may  be  very  seriously  distressed,  and  the  distress  will 
probably  extend  to  the  farming  community  round  about,  if  a  private 
banker  cannot  repay  the  sums  deposited  with  him. 

There  is,  however,  this  to  be  said,  that  a  private  banker  can  take 
•ecuritiea  for  his  loans  that  are  prohibited  to  a  chartered  bank  and  so 
keep  himself  safe. 

(S)  A  private  banker  must  beware  of  getting  his  money  "locked  up," 
and  will  need  to  calcilate  carefully  the  le.igth  of  time  which  borrowers 
require  so  as  to  be  sur;  of  having  sufficient  money  in  his  office,  or  zt  ^ota- 
mand,  to  meet  daily  Mn,  ^nda.  And  in  taking  fixed  deposits,  the  notice 
should  be  sufficiently  long  to  enable  him  to  make  arrangements  to  meet  a 
large  demand  without  embarrassment.  He  will,  of  course,  have  it  imder- 
ttood  in  taking  deposits  of  more  than  an  average  amount  that  the  notice 
will  be  required,  as  a  matter  of  business. 

(4)  To  insure  all  this,  he  must  keep  sufficient  reserves. 

There  are  private  bankers  in  Canada  who  have  continuously  fulfilled 
these  conditions,  and  maintained  a  prosperous  busin'^os. 

On  the  other  hand,  there  have  been  a  certain  number  of  failures 
amongst  this  class,  which  failures  have  been  almost  invariably  traceable 
to  want  of  sufficient  capital  to  begin  with,  coupled  with  a  disposition  to 
take  risks  which  a  chartered  bank  would  avoid. 


I 


CHAPTER  ir. 

J0INT-8T00K  BAMKINO  IN  OBHEKAL. 

CiNADiAN  Joint-Stock  Banki— The  Bank  or  Enolano— Okoahiia- 
TliN  or  Banki  in  the  Unitcd  Statu. 

THE  early  bankers  who  co-operaled  in  the  raovemenlt  of  commerce,  In 
Europe,  apart  from  the  great  inititutioni  wliich  were  avowedly 
created  to  assist  the  Government,  were  largely,  as  has  been  seen, 
private  individuals  or  firms.  Hut  since  the  extraordinary  oiiening  up  of 
countries  in  lodern  times  and  the  vast  deveJopment  of  commerce  in  con- 
sequence, ine  tendency  has  increasingly  been  for  banliing  to  be  carried 
on  by  incorporated  companies. 

Banking,  therefore,  in  .nil  its  im|iortant  spheres,  is  thus  carried  on; 
and  It  has  been  evident  that  the  principal  motive  for  giving  ponera  to 
banks  in  a  corporate  form  is  that  they  might  efficiently  co-operate  in  the 
promotion  of  commerce. 

A  joint-stock  bank  with  its  headquarters  in  China  and  its  agencies 
in  England,  the  United  States,  and  Japan,  takes  an  influential  part  in 
the  movements  of  the  Eastern  trade  of  those  countries.  Similarly,  an 
Indian  bank  having  its  headquarters  in  London  covers  the  whole  of  our 
Indian  Empire  with  its  operations  and  takes  part  in  the  movements,  both 
outward  and  inward,  of  the  commerce  of  Australia  and  Sew  Zealand. 
These  are  simple  facts. 

Canadian  Joint-Stock  Banks. 

The  principal  banking  corporation  of  Canada  covers  the  whole  Do- 
minion from  the  Atlantic  to  the  Pacific  with  its  branches,  and  there  is 
scarcely  an  operation  of  manufacture  or  commerce  therein  which  that 
institution  does  not  assist  in  developing.  Bui  the  commerce  of  Canada 
has  an  intimate  connection  with  England  and  the  United  States.  This 
bank  therefore  has  offices  in  London,  New  York  and  Chicago,  and  assists 
in  carrying  on  the  larger  operations  of  trade  in  all  these  cities. 

The  same  may  be  said  of  other  Canadian  banks  whose  operations 
cover  an  immense  eitent  of  territory  in  the  United  Slates  as  well  as  in 
Canada,  from  New  Orleans  to  the  Yukon,  and  enable  them  to  co-operate 
in  the  movements  of  commerce  from  its  smallest  beginnings  in  the  opera- 
lions  of  a  country  trader,  to  those  vast  developments  by  which  the  pro- 
ductions of  whole  countries  are  massed  for  shipment  in  great  ports  and 
sent  across  the  ocean  to  the  remotest  parts  of  the  world.  It  is  evident, 
however,  that  banks  covering  so  wide  a  field  must  of  necessity  have  a 
corporate  form.  No  private  firm,  however  wealthy,  could  possibly  cany 
»  17 


'•  BANKING   AND   COMMERCE. 

on  buiin,..  In  „  m„„y  divf Midrf  f„™,,  ,„  ,„eh  divm.  condltloni,  .„d 
covering  .uch  v.tt  .phcm  of  oixration  ••  .rr  covmd  by  tome  nodeni 
bank!.    Incorporallon  thrrcfon  vai  a  nccniily. 

Till  BtNic  or  Ei»oi*»D. 
It  haa  brni  alrrad.r  pointrd  oat  that  the  Miili„il)  of  a  bankinz  Ann 
is  a  moit  «.™tl,l  fratur.  of  the  bailn»i.  So  manv  interest!  depend 
upon  it,  that  all  modem  eoontrle.  have  «>uRht  by  lexUlation  to  prorlde 
that,  .0  far  a.  possible,  they  shall  not  be  subjeet  to  the  ehaoRe.  of  time 
and  chance.  In  Scotland  the  greater  part  of  the  basir.-si  of  banking  has 
been  carried  on  for  t.o  hundred  years  by  corporations  organised  direcllr 
or  indirectly  by  acts  of  Parliament.  And  banking  would  doubtless  have 
had  the  same  development  in  England,  but  for  the  fact  that  up  to  a  cer- 
tain period  the  Bank  of  England  was  by  long  tradition  extremely  jeal- 
ous of  hanking  being  carried  on  by  corporations.  That  great  corpora- 
lion,  while  willing  to  tolerate  what  it  eould  not  prevent,  vis.,  the  forma- 
tion of  private  banking  partnerships,  would  never  tolerate  the  formation 
of  banking  corporations  created  by  act  of  Parliament. 

The  idea  of  the  Bank  of  Engla'qd  was  thai  all  other  banks  in  England 
should  be  Iribntaries  to  itself,  revolving  round  it  as  lesser  lights  revolve 
around  the  ..un.  They  should  keep  an  account  with  it,  deposit  with  it  all 
their  spare  funds,  keep  their  cash  reserves  in  Its  hands,  and  in  case  of 
need  rely  upon  It  for  assistance  by  redlseounting  or  by  secured  advance!. 
The  Bank  of  England  was  thus  lo  be  the  Banker',  Bank;  and  anj 
coming  into  touch  on  Its  port  with  the  commerce  and  trade  of  the  coun- 
try was  to  be  through  the  medium  of  otiicr  bankers.  There  was  no  ei- 
press  law  to  this  effect,  but  the  unwritten  custom  gradually  grew  up,  and 
'.a  potent  was  its  force  that  in  time  It  became  lixed  and  universal.  Even 
ofler  the  force  of  public  opinion  became  potent  enough  (.is  It  did  after 
the  crash  amongst  the  private  banking  Interest  in  1885)  to  break  down  the 
opposition  of  the  Bank  to  the  estobliahmcnl  of  banking  corporations,  the 
,oree  of  this  tradition  prevailed.  To  this  dav  the  Bank  of  England  it 
larnrly  the  banter's  bank.  All  the  banks  in  the  country  keep  an  account 
with  some  bank  In  London,  or  with  the  Bank  of  England  direct,  and  all 
London  banks  keep  an  account  with  the  Bank  of  England,  and  commit 
to  its  keeping  their  reserves  of  cash.  Such  great  banks  as  the  NaHonal 
Provincial  Bank  of  England,  with  its  200  branches  and  50,000,000  ster- 
ling of  deposits:  or  the  London  and  County,  with  its  deposits  of  11,000,- 
000  sterling,  not  to  mention  other  great  corporations  In  London,  Man- 
chester, Liverpool  and  other  centres,  besides  every  bank  in  Scotland  and 
Ireland,  all  acknowledge  the  supremacy  of  the  great  central  institution 
by  keeping  accounts  with  it,  and  lodging  with  II  their  spare  funds. 

It  Blight  he  thought  that  when  power  was  given  by  Parliament  to  es- 
tablish banking  corporations,  the  Legislature  would  endeavor  to  have 
them  modelled  upon  the  j  ttrrn  of  the  Bank  of  England.  That  great 
corporation  had  demonstrated  the  wisdom  of  its  constitntion  by  a  re- 


.rOINT-ST(KK   BANKING   IN   GENERAL.  ,9 

.11  tbo  v,..|„l,„d...  of  eIu      I  „  '    7r      V"^  "-n-HOwnt.     l)„ri„g 

..»:bic';:,vi:r  u,:'  s : ,  "t  ';;;:'„:i'"rr"  ,°1  - - 

-.  .  n,„,I..h  nnd  tl,„  f,„  «,„.,""  ,.1„,  "'^^^    I     i'""",^  """.'""  '"'"" 

in."!;: ::::  :!::::■:;;,:;:;;-;;■  -x^:;:': ••  '■""^•"  - - 

n.M«  „f  London.     B„,  non.  of     ..i    „°:^'.  'J^;  ll  1  ";""","  " "  ''"^ 

..  .he.  ei,e,„^„„  »„.  „,„,„,  .„„„,  ™^:d 'i: , '  t.;;rr  Ti;: 

tli.y  W.TC  iMui-d.  Bui  II,,-  not,-,  of  ll,c  Bank  of  K.,„l»„Ti.  ■  ,  . 
.-..der  ei„,d„..d.  .nd  .„.-  i„„.,.d..d  .o'^l'l,,  '„,  '^  "1,';,::, 'T 
..Tc  a  K-g„l  „-„d,-r  ov.-r.v«-l,..r..  oxc-pl  a.  the  Bank  i,.c-lf.»  B,„  ,h  'w  -"^ 
nfvtr  legal  trader  in  Scotland.  ^ 

couH'l',''J"f'M"°"r'  ";"'""  *''•'■  "'"  '^'■""■'  •"•  'I"-  "»"''  "f  England 
could  not  be  followed  .n  fra,„i„g  la.-,  for  „tl,cr  j t-,l,K.k  hank.,     n  „ 

m<nt  I  wo.  founded  to  „„i,t  tl,c  Government  in  tlu-  diHicuIt  dav.  of 
the  Rcv„,,t,„„  of  „i88,  and  it  l,a,  r,-ta,n,d  tl,i.  r..,-„tial  f,-atl.  , '  th". 
d».v.  Although  ...  capital  l,a,  bc,-„  ,nerea,cd  „,ore  than  t,-nfold  ,i„cc  i 
foundation  there  l,„,  never  been  a  tin,e,  down  to  the  pre.ent  l,o,rwl,en 
ZlU^l°u  °"'''  !"  *"  '"""'■■'  '°  "■^'  Gover„„,ra.'„f  the  da-  Z 
fi«   ea'io  ,  •"  ■"■'""  '.'""'""'°°''  "'»'  ""■  «">ernn,enl  ba.  had  tl,c 

been  c^Wied  in  legi.Ia.ion,  b„,  i,  i.  „„e  of  tl,„.c  traditio  1  lit  I' 
bee^.o  long  ,n  operation  a,  to  hove  oequired  the  force  of  law." 

Cl..v,..,ment  of  Enitlana  n..,"r  1,,,,,-d  olmrtaH, t  .  '°  "'">'"'""  ""'l  It  ".ii..  Tho 
•  ™  l.,ued.     B,it  n„  nt,l,-l,„l„,.r  °r  oihorcr  ,11,,?;  ,7  ,1 '"i'""„""''"  ""'^l'  """" 

'.t«bll.h,no„t  cr  mand  bank,  "r  of  a  ^ZZ^  ,  "'  r,'""":"^'  '"  '"""  "">  ■!"■ 
money  „,  „rry  on  ,ho  war.  And  H  fully  TmlLT^,""^'""-  '""  ""  '"•talnlnB  of 
b»nl<ln,  eapiui  „,  ,he  oo,,nlry  wa,  IoZJ^Z  ,t"l''"  ■""P"'-  Almo.t  the  whole 
Joldln,  of  Oovernment  .-cnrl'l,.'  A„d '^„  ° 'Iv  ^r  ,"J"'"'  '"  "'"  ''"'"  "'  »>• 
^"y.of.h.  w.rl,,,^Jyp,„„,,b'"■,<,^J°^™'l,™'>•^»■«"   'h,  operallon   In   the  early 


BANKING    AND    COMMERCE. 


Thr  rhnrirr  of  Ihr  Bititk  of  England,  whirh  ctuirtrr  U  limply  an  Mt 
of  Parliatnrnt  rmbodyinfi  Itn  ronititii^ion,  hai  thrrrfore  nrvrr  brrn  adopt* 
rd  at  a  mode]  fur  nthrr  banki  in  England.  In  fact,  thr  Jalnl-itork  banki 
of  England  liavr  m vtr  brrn  govrrnrd  by  Ihr  |)ro%-liioni  o(  a  grnrral  art 
ai  have  thr  banki  of  Cnnndn  and  thr  United  Statri.  A|>art  from  the 
iMveitity  of  making  a  drrlaration  at  to  the  amount  '>f  their  propowd 
e.-Dltal,  thr  nnmra  of  thrlr  original  dlrertori  and  ito.  Solders  and  moft 
particularly  the  nnmr  of  the  offirer  in  whose  name  the  corporntion  can 
lUt  nnd  be  «ui-d,  they  art'  at  liberty  to  carry  on  their  buiinets  In  any  waj 
that  ■tocklmMem  and  dirrrtora  may  deem  advisable.  The  one  important 
rettriction  tn  whieli  thry  are  iiibjrrt  li  in  the  amount  of  tlieir  rirculation. 

Since  the  passing  of  the  celebrated  Hanking  Act  of  Sir  Robert  Peel  in 
1841,  every  bank  in  England,  whether  private  or  joint-stock,  hns  been 
obliged  to  restrict  its  issue  within  the  amount  of  its  average  issue  for  the 
three  years  previous  to  1844.  This  amount  has  Iwen  registered,  and  ap- 
peirt  in  eveiy  published  statement  of  the  note  issues  of  English  banlu. 
The  banks  of  Seotland  made  a  strenuous  resistance  to  the  restriction  be- 
ing applied  to  them;  and  succeeded  #o  far  as  this,  that  they  were  allowed 
to  eiiceed  this  limit  on  condition  that  they  should  hold  gold  for  the  excess 
— an  academic  rulf,  devised  by  legislators  of  little  lianking  experience- 
But  the  lib<-rty  they  obtained  to  pass  bejond  the  average  of  circulation 
of  half  n  century  ago  has  proved  to  be  most  profitable  to  the  banks  and 
advantageous  to  the  country. 

Orqanixation  or  Banks  in  the  UNiTr.o  Statkr. 

The  organization  of  banks  in  the  United  States  has  passed  through 
various  fltages.  and  is  complicated  by  the  fact  that  it  has  been  dealt  with 
by  both  State  nnd  Federal  legislation.  To  attempt  even  a  brief  summary 
of  the  steps  by  which  the  banking  laws  of  'the  United  States  have  reached 
their  present  development  would  be  beyond  the  scope  of  this  work.  Suf- 
fice to  say  that  after  an  attempt  made  many  years  ago  to  establish  a 
Bank  of  the  Uniltd  States  on  somewhat  similar  principles  to  that  of  the 
Bank  of  England,  which  projrct  failed  for  political  reasons,  numerous 
charters  wt-re  granted  by  the  separate  .States,  Many  of  these,  especially  in 
the  Eastern  cities,  were  well  considered,  and  framed  with  much  financial 
wisdom.  But  it  was  far  otherwise  in  some  of  the  States  of  the  West.  In 
these  newer  communities,  many  charters  were  granted  by  their  several 
Slatt'S  in  a  manner  that  set  common  sense  at  defiance.  Numbers  of  banks 
were  established  with  powers  to  issue  notes,  under  the  foolish  idea  that 
by  this  means  money  eould  be  made  plentiful,  and  the  development  and 
prosperity  of  the  district  insured.  No  proper  provisions  were  made  for 
the  redemption  of  these  notes;  it  thus  came  about  that  masses  of  cur- 
rency were  set  afloat  which  speedily  went  to  a  discount;  whilst  much  of  it 
ultimately  became  almost  as  valuHess  nn  the  Cnntinrntal  enrrmey  of  the 
Revolution.  This  "wild-cat"  currency  (as  it  was  named)  was  a  source 
of  untold  trouble  to  merchants  and  travelers,  from  the  fact  that  the  notes 


JOINT-SKKK  BANKING  IN  OENEHAL.  n 

«i,ri^'\:::z'J!'aT  '""L'"''  '  '"""•'  ••'"'•  "'•"''  ">«  «>-m 

ulk  Z,rTlT  P""'""""-  l"".d   for  Ih,  purp«,.      Tk.. 

Wll.  th,l  «„  'J^xl'M,  wlthou.  con.ulti„g  „„,  of  ,h,„  „„,j..     B.,  . 
fr»t  "lr«y   h«<i   "i.,.„   „„Hr,   which   Ih,   Mr„,u   „f   ,hc   ..p.,.,, 

Engl.„d.  b.,1  ..„fc,„  of  bo„k.  ,h„„  ,j„,^  „    ,  «  « 

.l^roTT,  ',"       "'.?  I'"""  •■""  ""  "«'"  °f  '"'""«  "•••■■  f""  th^ 
•moiinl  of  their  lo,n  which  would  he  held  ..  „cupily  thcm„r  (Ic  . 

the  other.    But  they  were  never  in.de  leg.l  tender.    The  .v.tem  w..  no 
J».ner  Lunched  th.n  it  proved  .„ece..f„l.    „  .pp^.w  to  patrrotr  eel" 

^opled  the  N.tion.1  .y.te™.     And  under  It  .n  Imn,enK  number  of  n« 
h.nk.  were  org.nl,    '      The  old  l..„e.  of  St«te  b.nk.,  under  the  ope," 

.nd  the  note,  of   he  national  b.nk.  bec.me  univer.»llv  prev.lent 
werei"        1  .     i''  "  'i""'  "'  «■"""•"■"«  '■-<•■  »»•  devLed  which 
r„7,     !?       *  ■'"■     ""'  "•  ""''  "'"  »°'  fyM'  '"  g"ld,  which 

jZl^hl  T  P7""7  •»  ""-"gl.  tb.  w.r.  thc.v-co™n,.ndS  no  T,, 

Mfer.     The  note,  of  the  GovemnH.nt  re.led  on  the  credit  of  the  Goveri- 
n,enl  .lone,  whUe  lho.c  of  the  W.  were  not  only  „cured  bv  Goven,n„"l 
bond,   but  were  .  eh.rge  upon  lie  ..Kt.  of  the  .ever.l  Unk.. 
i..ue       Xr"cZ""^,'°  enter  further  on  the  .ubject  of  the  Government 

sZ^on^trbr;"  "  ""  '^'"  "■"  *""  '-  ""■  "'  "-  ^■'^ 

It  mu.t  not  be  imogined  th.t  when  the  N.tiou.I  Unking  .v.teui  beiTM 
to  prev.,1  .0  exten.ively  i,  drove  the  old  .St.te  Uuk.  out  of  e,  .tence     B? 

.11  the  ope  .fon.  of  b.nking  except  the  i..ue  of  note,.     Now,  for  tank, 
n  l.rge  citie.,  the  power  to  i..ue  their  own  cnrrency,  rclricled  ..  it  w.. 

lbIiJr"".TM V"""  *"'"  "''^-"P  "P""-  "^  •ccon.p.nied  by  the 
^TZ,,  *''"•■  ""■™'  »«-'•.  ™  of  >^"  .nd  le,.  v.Iu.  I.  the 

bond,  yelded  .  le„e  .  ,  r.te  of  intcre.1,  until  «„,IIy  it  became  of  K;.rce- 

IZ'tuVb^L  ■",:",'  "■"•  "  "•  "  """  ^'""'  ">  '«"k'  i"  .^^' 
cenlre,.    But  bonk,  ,n  the  large  citie.,  .nd  cpeciall,  in  New  York  could 

^:::'^:i^  '^-'-'  -'  --^  -'- «-  '•>--» 


CHAPTER    f. 

THE  INTERNAL  ECONOMY  OF  A  JOINT  STOOK  h^hl^. 

Thb  Two  Main  Dbpartmknts — The  Teller— His  Qualification! — 
The  Ledoer  Keeper — Dibcount  and  Loan  Department — The  Ac- 
countant— The  Branch  Manager. 

IN  every  banking  office,  be  it  large  or  small,  the  work  will  be  divided 
into  two  main  departments — the  handling  of  money  and  the  keeping 
of  accounts;  each  of  these,  in  a  large  office,  having  various  subdi- 
visions.    Abo\e   and   beyond   these   is   the   department  of  management, 
whether  of  a  single  office,  or  the  whole  bank.     Let  us  consider  each  of 
these  in  order. 

The  Teller. 

The  first  persons  with  whom  a  banker  has  to  do  when  he  opens  an 
office  are  those  who  bring  money  to  deposit.  Tt  is  for  the  purpose  of 
receiving  them,  that  he  must  have  a  counter.  This  counter,  as  has  been 
shown,  is  the  original  bank,  behind  which  the  banker  or  his  officers  stand 
and  on  which  money  is  pl.iccd  to  be  counted.  Hence  its  name.  A  person 
who  stands  at  this  counter  ready  to  receive  or  pay  money  is  called  in  Eng- 
land a  cashier,  meaning  a  person  who  handles  cash.  In  Scotland,  the 
United  States,  and  Canada,  this  officer  is  called  a  teller,  or  a  person  who 
tellt  or  counta  out  the  money  he  handles.  In  a  small  branch  the  manager 
himself  often  performs  this  office ;  but  when  the  business  is  enlarged,  the 
work  must  be  delegated  to  another.  The  amount  passing  through  the 
hands  of  such  an  officer  in  the  course  of  a  day  is  very  large,  and  he  is  re- 
sponsible for  it  to  the  last  penny,  or  the  last  cent.  Such  a  man  must 
have  a  good  head  for  figures,  quickness  of  fingers,  be  able  to  count  rap- 
idly all  sorts  of  money,  and  also  to  make  rapid  calculations.  A  slow 
man,  no  matter  how  correctly  he  may  do  bis  work,  will  never  answer  for 
this  post.  He  will  only  waste  the  time  of  customers,  and  irritate  them.  A 
good  teller  must  have  a  quick  eye,  so  as  to  be  able  to  tell  a  bad  coin  or 
a  forged  note  or  draft,  the  moment  he  sees  it.  An  expert  teller  will  come 
to  have  a  sort  of  instinct  about  such  things,  and  be  able  to  detect  a  bad 
coin  or  n  had  bill,  or  raised  draft,  by  instant  eyesight.  Besides  this,  he 
must  be  able  to  keep  cool  on  busy  days,  and  liarn  not  to  be  flurried  when 
many  are  waiting  about  the  counter,  or  are  imreasonablc  in  their  require- 
meiiis,  as  some  people  are  nt  times.*'     If  he  does  get  flurried,  he  will  be 

iT  In  Ev  »e  English  bank*  a  practice  prevails  of  providing  an  ante-room  and 
only  admitting  Into  the  banking  office  as  many  perBons  at  a  time  as  ther«  ara 
tfllers  to  wait  upon  them.  .Thus  there  is  never  a  crowd  alwut  the  counter,  and 
the  teller  has  only  one  person  to  attend  to  at  »i  lln.e.     To  caiiy  out  this  practlca. 


THE  IXTERXAI,  ECONOMY  OF  A  JOINT  STOCK  BANK.  i3 

ftfe'„°J°„","'77.,"l'''°"'''  •"•"  '  '"»'  development  of  civility,  if 
It  be  not  natural  lo  him,  he  should  cultivate  11 

.nH^lr"*  """'  ^'^"  """"^  '>'''•'*'  ""■^  ™'.  "'"  »!»»  bo  ob.erv.nt; 

W.t,n1  %  "  ""  ""■•"'  «>"■»"■>-•«"«  lo  the  manager.  In  . 
large  bank  a  d,v,„on  «  enstomnrilj-  made  between  the  duUefof  thoac 
who  receive  money  and  those  who  pay  it  out.    In  both  of  theae,  however, 

ntat'y  ""      '  ""  '""''  ''''  '"''  ""  """"1  «-«"•  »«  "l-W 

l,MiK°  f""  ^",'"  °'  ''".'''""■^''  Sfl«,  the  senior  teller  has  the  responsi- 
b,l,ty  of  cert,fy,ng  cheeks  to  l,e  g„od-„  difficult  function  to  perform,  a, 

self  and  must  trust  largely  to  hi,  memory.  This  olBcer  in  an  American 
bank  IS  entrusted  w.th  a  certain  discretion  in  the  matter  of  certification. 
He  ..  always  a  man  of  cperience,  and  his  position  is  next  to  that  of 
AJtinn^r  or  Cashier. 


The  Ledoem  Keeper. 

In  the  natural  order  of  things,  the  next  person  with  whom  a  bank 
customer  has  to  do,  is  the  person  who  keeps  the  ledger  containing  the 
customer,  accounts.  The  connection  between  him  and  the  teller  is  necea- 
aanly  close  and  it  is  important  that  the  money  paid  in  or  taken  out  by  a 
customer  should  be  speedily  entered,  so  that  on  a  busy  day  of  many 
transactions  the  account  may  be  accurately  stated  at  anv  hour.  Otherwise 
there  is  danger  of  a  check  being  relused  when  there  .r"e  funds  lo  meet  it, 
or  of  a  check  being  paid  after  all  the  funds  have  been  drawn  out.  The 
ledger  keeper,  like  the  teller,  must  be  both  accurate  and  quick;  but  above 
aU  thing,  accurate,  as  a  mistake  in  the  keeping  of  a  customer',  account 
may  lead  to  an  actual  loss  of  money,  or  to  the  closing  of  the  account  itself 
And  like  a  teller  he  must  have  a  quick  eye  to  observe,  for  upon  him  rest 
the  responsibihly  of  discovering  forgeries.  To  this  ofBcer  in  a  Canadian 
bank  al!  check,  are  preaented  to  be  ■marked  good"  before  being  paid. 
But  there  1,  a  difference  in  thi,  maHer  between  the  custom  prevailing  in 
the  United  SUtes  and  in  Canada.  The  ledger  keeper  in  Canada  before 
he  marks  a  check  good,  dMi,  the  cuslomtr',  account  mlA  ■(.  There  il 
thus  a  scientific  precision  about  the  process.  In  an  American  bank,  the 
check  is  simply  certified  to  be  good  without  the  customer's  account  being 
debited  with  it,  a  practice  which  seems  lo  open  the  door  to  serious  abuse, 
this  custom  IS  analogous  to  that  prevailing  in  many  English  banks.  It 
IS  not  good  in  theory,  but  it  seems  to  work  well  in  practice. 

iLh™"'   '"""":   """"""^U   are   regulrea    from    those    In    a    Canadian    bank 


**  BANKING    AND    COMMEHCE. 

The  ledg<;r  keeper,  like  the  teller,  if  ob.ervant,  may  notice  manr 
thing,  m  the  working  of  aeeonnt.  that  are  worth  eommunicating  to  the 
manager,  especially  symptoms  of  exchanging  checks,  or  borrowing  .nr- 
reptitiously  from  anotl,..-  bank.  He  can  also  form  an  opinion  a.  tc 
whether  a  customer  is  easy  financially  or  otherwise. 

The  Discount  and  Loan  DEPAnTUENT. 
In  this  important  o/Fce  a  clerk  has  many  opportnnitiei  of  clisplaying 
more  than  ordinary  intelligence  if  he  is  possessed  of  it.  To  a  discount 
clerk  is  committed  the  responsibility  of  seeing  that  the  bill,  he  handle, 
are  in  proper  legal  shape.  The  manager  considers  whether  or  not  the 
name,  on  the  bills  are  satisfactory,  and  if  they  ought  to  be  discounted. 
But  the  discount  clerk  examine,  every  bill  to  see  that  there  has  been  no 
material  alteration  in  it,  that  it  is  not  dated  on  Sunday,  that  the  signature 
and  endorsement  are  in  proper  order,  that  it  is  complete,  and  not  defec- 
tive. He  will  also  notice  any  peciUiarity  in  the  signature  or  endorsement 
which  would  lead  to  a  suspicion  of  fraud.  A  good  discount  clerk  will 
notice  how  the  account  of  a  customer  is  working,  whether  favorably  or 
otherwise,  also  whether  renewals  are  frfquent,  and  certain  lines  of  paper 
tend  to  become  chronic. 

In  the  case  of  loans  he  will  be  expected  to  scrutinize  the  security,  and 
to  see  that  such  document,  as  warehouse  receipts,  bill,  of  lading,  policies 
of  insurance,  etc.,  are  in  proper  order.  Loans  on  bonds  and  stocks,  where 
the  business  is  large,  are  generally  under  charge  of  a  special  clerk.  Hi. 
dutie.  will  be  very  similar  to  those  of  a  discount  clerk.  Here  again  an 
observant  clerk  will  notice  much,  in  the  actual  handling  of  the  business, 
which  would  be  of  interest  to  a  manager  to  know. 

The  duties  of  a  colleelim  clerk  are  of  much  the  same  character  as  i 
discount  clerk,  and  call  for  no  special  remark.  The  same  may  be  said 
of  the  exchange  clerk.  He  deals  with  foreign  bill,  as  a  discount  clerk 
does  with  inland  ones.  And  while  a  manager  determines  whether  the 
bills  are  to  be  bought  or  not,  and  fixes  the  rate,  the  exchange  clerk  will 
see  whether  they  are  drawn  in  accordance  with  law,  and  whether  the  doc- 
uments of  security  are  in  proper  form. 

The  Accountant. 
The  highest  officer  in  the  ordinary  working  of  a  bank,  and  coming 
immediately  next  to  the  manager,  is  the  accountant.  He  keep,  himself, 
or  causes  to  be  kept,  the  important  book  called  the  general  ledger  in 
which  the  leading  department,  of  the  oflice  are  summarised.  It  is  by  an 
accurate  keeping  of  this  book  that  the  manager  is  made  acquainted  with 
the  amount  of  the  deposits,  discounts,  and  cash,  day  by  day,  together  with 
balances  due  from  one  or  to  other  banks  or  agencies.  "ll  is' by  infoimation 
gathered  from  this  book  that  he  guides  his  course,  very  much  as  a  navi- 
gator guides  his  ship.    Summaries  of  the  principal  account!  are  also  laid' 


THE  INTERNAL  ECONOMY  OF  A  JOINT  STOCK  BANK.  « 

ledge,  i,  „„,  di«c„>?  "eeT  B,.i  toleTn  r  °'  ""f?  '^"■"'""«  "■" 
pcible  importance,  for  m,  .111  '^  .ccuMtely  i.  „f  the  highert 
book,  of  the  bank  The  e  ,.  ,t  T",  ""''  "  '''^  '°  *»  "«  ""■" 
.houIdbekeptbvtheleoLanr  r  """''  °'  '"«''  ™P<"*«°«  'W'^" 
known  .,  the  niZZ^'VlM^Z^'''''-  "''  "■■"  "  «'""""^ 
every  dUconnting  or'borrTwL  cllll        .•";:  '^°""'  "  '^"'^  "■"- 

:^:s:Xt^-r^:t™S:?;^-?.''rt::^ 

4  examination  o  t' sula"        hat  h  T  '"""J""  "•  ""=  ■"'■"°«"' 

it  off  by  heart.     The  aeelZ  '  hoi  IH    7'    I  '"^  "'^"'"''^  '°  '"■°'' 
through  the  grade,  andrattlnt"    e'woTk  ^f  "er.  l^r"',"!"^" 

::;^Xhf2^r:;'rr"*'2"'''7'^'-^''-'-i^ 

d»tie.,  and  to  adW  e  them    n  e!  I'of  Jii'  ',.     '"pi""™'  ''"""  '"  "■"' 
manager's  plaee  in  case  of  »h/        °'  ''"B'^"  'y-     He  naturally  take,  the 

motioS  ,0  a  Lnagrh,;    ,,  o  ,d  Te  di,'l        """"  "  ='"^''"  ""  P'- 
plaeed  temporarilvin  charge  ^    ^  """'«'"«  ''"'"«"  ^l-^" 

Ba„^:2:m';trf  zr'Tcrv  i'  "r  -^  -^ 

..ter  on;  JarhU^'t'he  Wg^  ^g  J     l  v^r^r";'^]  '%r  "•""' 
divi,i„n,  of  vork  in  a  banking  XT    I  t  ,h  *^  "  °'  ""  ''''"''"e 

and  le„  time  occupied  with^^h?™  .  „  "wo  k 'of'troTc'e     ""  T  '"" 

::x?::r-.Xt!r^'z:r:i~r^^ 

of  thousand,.  ^  ""  """■■  '"'^  '°»=  thouMnd.  or  ten. 

The  foregoing  .ketch  i,  applicable  solely  to  the  .tagk  «ffi„  „f  , 


96 


BANKING   AND    COMMERCE. 


bank.     The  general  manager's  department,  or,  as  it  ii  MmeUmes  called, 
th<!  Head  Office,  calls  for  a  different  set  of  men  altogether. 

The  Branch  Manaoie. 
The  manager,  as  Mr.  Gilbert  well  observes,  in  his  practical  treatise, 
is  a  banker  and  not  a  bank  clerk;  and  there  is  somewhat  of  the  same  dif- 
ference between  the  two  as  there  is  between  a  lawyer's  clerk  and  a  Ittwyer. 
The  manager  should  be  a  man  who  understands  the  principles  of  the 
business,  and  especially  the  principles  on  which  loaning  ar^  discounting 
should  be  conducted.  He  must  have  the  aptitudes  of  a  man  of  business; 
must  Lave  !a«re  or  less  of  "tavoir-faire;"  must  know  how  to  talk  to  dif- 
ferent classes  of  people;  in  fact,  he  should  understand  human  nature.  It 
is  he  to  whom  customers  Jpply  for  loans,  and  to  him  they  explain  their 
position,  their  means,  and  their  difficulties.  He  roust  understand  enough 
of  business  to  judge  whether  their  applications  are  reasonable  or  not; 
whether  the  amcunt  is  proportioned  to  the  extent  of  the  business ;  whether 
the  security  is  good ;  whether  the  time  is  reasonable.  And  as  his  business 
proceeds,  he  must  be  able  to  judge  whether  a  discount  account  is  working 
properly;  whether  the  class  of  bills  oiTeted  is  satisfactory;  above  all,  he 
must  have  a  keen  eye  to  observe  any  signs  o'  coming  trouble,  and  courage 
to  take  measures  accordingly.  Yet  he  must  be  discreet,  and  not  hasty  in 
i'orming  conclusions ;  otherwise,  he  may  do  serious  mischief.  An  import- 
ant part  of  a  m&nager's  care  is  to  see  that  the  supply  of  money  for  his 
office  is  sufficient,  so  that  he  may  meet  the  daily  demands  of  customers 
and  of  other  bankers  \'hrough  the  clearing-house  or  in  course  of  exchange. 
If  he  is  manager  of  a  Sranch,  he  has  a  head  office  to  fall  back  upon  for 
supplies,  and  a  general  manager  for  orders  or  advice.  But  the  daily  duty 
presses  upon  him  of  seeing  that  his  office  is  properly  equipped  for  meet- 
ing d-mands.  For  this  reason  he  will  notice  day  by  day  the  balances  at 
his  credit  in  other  banks  or  agencies. 

A  manager  will  pay  special  attention  to  how  his  clerks  per- 
form their  duties,  and  "keep  them  up  to  the  marie"  in  that  respect;  en- 
couraging or  reproving  as  circumstances  arise,  br  if  necessary  changing 
their  positions,  or  recommending  change.  He  will  of  course  be  oflBU  in 
communication  with  the  accountant  in  regard  to  these  matters,  and  will 
see  that  the  accountant  himself  performs  his  duties  properly." 

A  good  manager  will  look  after  the  past-due  bills  of  his  customers,  and 
take  them  specially  under  his  own  charge. 

This  remark  applies  very  particularly  if  any  of  his  customers  become 
insolvent.  It  will  be  his  special  care  to  see  that  the  most  is  made  of  the 
estate,  and  that  the  rights  of  the  bank  are  properly  guarded  in  the  mat- 

liThe  mer.t<*«r  will  of  couna  underatand  th«  work  of  every  man  In  the  office 
and  should  be  able  to  do  It  If  necemary.  It  will  add  Immeneety  to  his  InlluenM 
!a  the  office  If  he  la  ikbl^  to  go  to  a  clerk  ari  aay.  "Tou  are  not  doln*  this  work 
properiy.  Bee  no*,  this  la  the  way  to  do  It. '  lultlna  the  action  to  the  word. 
Clerks  In  auch  an  office  will  be  euro  to  be  alert,  and  will  talk  amonv  themselvsa. 


t  manager  Jtnowm  all  about  It;  H  ia  no  u>e  making  fnolUh 


«tc«Bes  fy  Wm." 


THK  INTERNAL  ECONOSlY  OF  A  JOINT  STOCK  BANK.  S7 

ter  of  ranking  npon  it.  If  tht  bank  of  which  he  i.  manager  ha.  no 
brMchea  other  duties  will  devolve  upon  hin.:  .nch,  for  example,  a.  relate 
to  hu,  intereo„r.e  with  the  director.,  and  .!«>  to  general  adminiatration. 


CHAPTER   VI 
DIRE0TOR8  OF  AN  INOORFORATED  BANK. 

DmECTORs  —  General    Qualification! — Duties  —  Thb     pREtniKNT — 
Committees  of  Din»:cTORs — Local  Directors. 

THE  general  framiwork  of  a  joint-stock  bank  in  Canada  and  in  the 
United  States,  and  in  some  respects  also,  but  in  a  lesser  degree,  in 
Great  Britain,  is  defined  by  acta  of  Parliament  or  of  Congress. 

In  Canada  and  the  United  States  the  law  regulates  the  minimum  of 
capita],  the  rights  and  functions  of  stockholders,  and  their  voting  power. 
It  ordains  that  such  banks  must  be  governed  by  a  Board  of  Directors; 
it  regulates  also  the  minimum  amount  nf  stock  they  must  hold,  and  the 
minimum  number  of  which  the  board  shaU  be  composed.  The  law  gives 
these  directors  the  power  of  appointing  and  dismissing  officers,  but  it  does 
not  preseriht     tiything  as  to  the  duties  and  responsibilities  of  such  officers. 

The  B..nkiiig  Law  of  Canada  also  limits  the  amount  of  circulating 
bills,  and  regulates  the  security  under  which  they*  are  issued.  But  it  im- 
poses no  limits  on  deposits,  or  discounts,  or  investments,  or  reser\'cs.  The 
principal  difference  between  the  banking  law  of  Canada  and  that  of  Eng- 
land is  in  the  restrictions  that  the  former  lays  upon  the  manner  in  which 
banking  loans  shall  be  made,  namely,  forbidding  absolutely  any  loans  upon- 
real  estate,  and  in  the  imposition  of  elaborate  rules  and  regulations,  with 
penalties,  with  respect  to  loans  on  merchandise,  all  which  are  absolutely 
foreign  to  English  and  Scotch  ideas  of  banking.  But  on  these  points- 
the  law  of  the  United  States  agrees  with  thnt  of  Canada. 

Directors. 

All  these  and  some  other  minor  points  being  preserib'cd  by  law,  it  wilL 
be  well  to  consider  how  such  laws  are,  or  should  be,  worked  out  in  prac- 
tice, in  order  best  to  secure  the  object  for  which  a  bank  is  established. 

Proceeding  upon  this  idea,  it  is  evident  that  the  first  matter  of  con- 
sideration will  be  the  composition  of  the  board  of  directors.  Upon  this 
will  largely  depend  not  only  the  well-being  and  prosperity  of  the  bank, 
but  the  very  continuity  of  its  existence.  The  government  of  the  bank  is 
placed  in  their  hands  by  law,  and  they  are  held  responsible  for  it  by 
public  opinion.    And  rightly  so. 

What  manner  of  man  therefore  should  a  director  be  individually? 
And  what  sort  of  selection  should  be  made  with  regard  to  the  men  who 
have  to  act  collectively?  These  are  pertinent  questions,  and  an  endeavor- 
will  be  made  to  answer  them. 

When  the  legislature  ordained  that  jolnt-itock  bankr  and  trading: 


DIHF.CTOns  OF  AX   IXf OBPORATED  BANK. 


29 


compnniM  slioiild  bi-  jjmcrncd  bv  directors,  the  intention  wa«  doubtleji 
that  Ibrjc  nhould  luiii-  scniewhiit  of  the  plnce  of  portners  in  a  private 
(inn.  This  was  lli,.  llnorv,  no  doubt.  But  considtrntion  will  show 
that  it  cannot  K-  sfictly  carried  out.  For  the  [Mrtners  in  a  private  firm, 
whether  of  bankers  ir  traders,  are  men  who  have  the  sole  ownership  of 
the  bu.iiness.  and  are  responsible  to  its  creditors  to  the  full  extent  of 
their  fortune.  Tliev  are.  tuo,  generally  men  who  hove  a  practical 
acquaintance  with  the  business,  most  of  them  having  been  brought  up  to  it. 
and  gone  through  the  gndes  necessary  to  a  familiarity  with  its  details. 
The  beads  of  the  tr.iding  bouses  of  every  country  are  generally  men 
of  this  sort,  and  know  bow  to  make,  buy,  sell,  and  handle  the  goods  of 
their  line  of  business.  As  to  Imnking  it  is  well  known  that  the  partners 
in  the  great  private  banks  of  Knglnnd  have  generally  had  a  practical 
training  in  the  office,  many  of  them  having  entered  early  and  gone  through 
the  grades  of  each  department  exactly  as  if  they  were  to  be  subordinates 
all  their  lives. 

But  it  is  impossible  that  conditions  like  these  should  be  found  in  a 
number  of  men  selected  for  the  Iward  of  a  joint-stock  bank,  or  of  a  manu- 
facturing company.  They  have  not,  and  cannot  have,  the  technical 
knowledge  that  jiartners  would  have.  Hence  they  must  rely  much  more 
upon  the  skilled  and  trained  officers  in  their  employ,  upon  whose  shoulders 
rest  the  daily  care  and  administration  of  the  concern.  In  the  sphere  of 
banking  such  a  class  of  officers  has  long  existed,  the  necessity  for  them 
having  arisen  many  generations  ago  in  Scotland  and  the  United  States, 
and  partially  so  in  England.  In  manufacturing  and  trading  corporations 
such  matters  can  only  be  said  to  be  in  a  condition  of  slow  development. 
Meantime  the  nuestion  will  arise  as  to  what  can  be  reasonably  looked 
for  from  a  body  of  gentlemen  who  are  placed  by  law  in  the  position  of 
directors,  but  who  have  not  ))ractical  knowledge  of  the  business  to  be  di- 
rected ? 

To  answer  this,  let  us  first  take  the  case  of  a  Joint-stock  Bank. 
When  a  gentleman  takes  his  seat  for  the  first  time  at  the  board  of  a 
bank,  and  [jarticularly  one  with  branches  in  various  parts  of  the  country, 
lie  will  probably  have  placed  before  him  reports  as  to  its  general  condi- 
tion, the  amount  of  its  deposits,  its  discounts,  and  its  circulation;  .also  the 
4imount  of  cash  on  hand  and  balances  in  banking  centres.  He  will  not, 
at  first,  probably  understand  much  about  the  bearing  of  these  statements, 
<ir  matters  submitted  or  referred  to  the  board,  but  will  learn  later  on. 
By  and  by,  however,  there  will  almost  certainly  arse  matters  of  which 
he,  has  some  special  knowledge.  An  account  may  be  off" ered  at  one  of 
the  branches  by  a  party  in  his  own  line  of  business.  He  then  may  be 
able  to  say  to  his  fellow  directors,  "I  know  that  firm.  They  are  fairly 
well  ofl'  now,  but  the  head  of  the  firm  is  somewhat  tricky.  He  failed 
some  years  ago,  when  he  was  in  business  alone,  and  his  creditors  (I 
was  one)  generally  thought  be  look  advantage  of  them.  You  had 
better  be  careful  what  you  do  with  this  application."     Or,  it  may  be. 


HANKING    AND    COMMERCE. 


he  can  my  thr  rxnct  opposite  nf  all  thitt;  vii.,  "That  firm  hng  not  over- 
much capitnl,  and  thry  havr  not  brrn  long  in  businpu.  But  they  nrr 
capable  and  honcit;  thry  are  the  kind  of  |)eoplc  that  get  on.  r)c|M'nd 
upon  it,  thry  won't  borrow  what  thry  cannot  pay.  You  may  tuifrly  give 
them  credit,  though  prrhapfl,  not  quite  all  they  aik."  Or  the  board  inny 
be  diicuiiing  the  cane  of  a  ciistomrr  who  ii  cmbnrrasticd,  thr  question 
being  whrthrr  thr  bnnk  shall  support  him  or  allow  him  to  fn  ..  Here 
a  director  who  is  in  whalrnnle  trndr,  nnd  has  customera  of  his  o«n,  hiay 
give  valuable  ni/rtVe,  based  on  his  own  rxperimce;  or,  it  may  be,  valuable 
information  nn  to  thr  iintrredenls  of  the  person  ronrernrd. 

As  time  goes  on,  the  m'w  dirertor  will  acquire  a  knowledge  of  the 
leading  customers  of  the  bank,  and  their  lines  of  discount,  or  their  loans 
and  thf  security  held  tlierefor.  The  knowledge  tlint  such  a  director 
acquires  by  moving  «I)out  in  the  rommerrinl  «'orld,  will  Ix-  of  great 
assistance  in  enabling  him  to  form  a  judgment  with  regard  to  many  of 
these  accounts,  and  s)M'cinlly  if  the  question  nrisrs  of  nn  applirntion 
for  a  trm|>orary  advance  without  srrurity.  In  such  a  case,  the  informa- 
tion possessed  by  a  single  menilvr  of  the  Imard  may  be  of  invaluable 
assistance  to  the  whole,  in  arriving  nt  a  safe  eonrlusion. 

In  time  a  director  may  arquire  sufficient  knowledge  of  the  theory  of 
banking  to  form  an  opinion  as  to  the  general  course  of  its  business; 
namely,  as  to  whether  it  is  extending  its  discounts  too  widely  or  not; 
whether  its  loans  ntv  properly  distributed;  whether  the  reserves  of  the 
bank  are  sufficient  and  in  proper  shape,  nnd  other  questions  of  general 
policy,  which  can  only  be  properly  considered  by  a  man  of  experience. 

In  the  case  of  a  director  of  a  manufacturing  company — let  us  say, 
0  large  ssw-milling  establishment-  -a  director  who  i.s  imt  a  prietienl 
lumberman  may  form  an  idea  as  to  the  financial  position  and  banking 
arrangemrnts  of  the  company,  and  whether  they  are  doing  too  much 
or  too  little  business  for  their  capital.  In  time  he  may  be  able  to  judge 
whether  the  cutting  of  timber  is  proceeding  economically,  and  whether 
the  outcome  of  logs  is  suffieirnt  for  the  money  expended  on  a  certain 
camp;  whether  the  drive  is  well  managed,  whether  the  mill  itself  is  pro- 
ducing all  it  ought  to  do,  and  of  the  right  proportion  of  qualities.  If 
a  responsible  foreman  or  manager  is  to  be  engaged,  he  may  have  special 
knowledge  of  applicants,  and  so  on.  The  same  principles  will  apply  to 
the  management  of  every  kind  of  manufacturing  enterprise,  whether  it 
he  a  cotton  factory,  an  iron  foundry,  a  sugar  refinery,  or  any  other  of 
the  diversified  industries  of  the  country.  Tn  all  these,  as  well  as  in  the 
sphere  of  banking,  a  body  of  men  of  business  experience  and  general 
intelligence  may  render  aid  of  a  highly  valuable  character,  "ven  though 
they  have  no  knowledge  of  the  technique  of  the  business. 

General  Qualifications  or  a  Bank  Director. 
Proceeding  to  the  general  characteristics  that  should  be  sought  for  in 
the  director  of  a  bank,  it  may  be  said  that: 


DIRECTORS  OF  A\  INCORPORATED  BANK. 


(1)  A  bank  dinrtor  Hhoiild  l»-.  in  Hir  Hnt  place,  a  man  of  meaiu. 
TIiP  law  itult  prifirriU'ti  tliiii,  in  i  vvrin'm  rxtrnt,  for  it  ordcM  that  the 
dirrotor  muni  hold  a  crrtaiii  ninnunt  of  stock,  Ihr  amount  btlnfj  propor- 
lionrd  to  the  cnpitjil  of  th<-  Imnk.  lint  the  pnncribrd  amount  is  small 
comparrd  with  the  rt-NpoiiNiliility  nf  the  officr,  and  it  might,  with  ad- 
vnntaffr,  br  larf^fly  incrriiHi-d,  and  douhlrd  or  trcblrd  in  the  casr  of  an 
ordinary  director,  and  qundruplid  in  the  case  of  a  president.  But  even 
then  a  man  would  be  thought  poorly  qunlifird  to  direct  the  affairs  of  a 
bank  whofw  mcaim  diil  not  exit  ml  biyond  aurli  a  minimum  os  that.  The 
amount  of  wealth  implied  in  the  tirm  "man  of  means"  should  be  such  ai 
gives  n  man  importance  and  standing  in  the  community,  and  cause*  him  to 
be  lookt-d  up  to  by  the  people  generally  as  a  man  of  capital  and  sub- 
■tance.'^ 

It  would  be  well,  as  a  rule,  in  whTting  men  of  wealth  for  directors  to 
give  preference  to  such  as  have  been  the  architects  of  their  own  fortune. 
There  are  exceptions  to  this,  of  course;  but  it  will  W  found,  as  a  rule,  that 
such  men  know  the  value  of  money  better,  how  it  is  gained,  and  how  it  it 
lost,  what  is  safe  and  what  is  not.  .\  man  who  has  made  n  success  of  bis 
own  business  is  likely  to  be  able  to  direct  other  affairs  successfully. 

(3)  A  bank  director  should  be  a  man  of  character,  respected  in  the 
community  be  has  lived  in,  with  good  antecedents  and  connectionit,  a  man 
of  whom  it  could  be  <iaid  "that  bis  word  is  his  bond."  He  should  have  a 
character,  too.  for  good  judgment,  prudence  and  common  sense;  such,  for 
example,  as  would  be  made  a  trustee  of  an  estate,  or  executor  under  a  will. 
If  he  is  a  director  in  one  or  more  trading  corporations  or  in  an  insurance 
company,  it  will  be  all  the  better,  as  evidencing  that  other  men  think  well 
of  him  and  can  work  with  him  in  positions  of  responsibility. 

(3)  A  bank  director  should  be,  as  a  rule,  a  man  of  influence;  that  if, 
he  should  be  able  to  influence  others,  and  therefore  to  influence  business 
to  the  bank.  There  are  in  cx^zy  commercial  centre  men  of  both  means  and 
character,  who  are  so  wrapped  up  in  their  own  concerns  as  scarcely  ever 
to  mingle  with  their  fellows;  commercial  recluses  in  fact,  who  know  a 
mere  nothing  of  commercial  afl'airs  in  general.  Such  men,  as  a  rule,  would 
make  very  indifl'erent  bank  directors.  What  is  wanted  in  a  bank  director, 
amongst  other  things,  is  the  power  of  influencing  businett,,  and  the  ca- 
pacity for  bringing  good  accounts  to  the  baftk. 

(4)  It  is  desirable  that  there  shall  be,  on  a  bank  board,  men  who  rep- 
resent and  have  connections  in  the  leading  lines  of  business  in  the  country. 
The  applications  for  loans  from  a  bank  come  from  men  of  different 
trades  and  occupations,  and  it  is  obviously  useful  to  have,  at  least,  one 

i*In  ufllng  these  word*  It  should  be  remembered,  that  wealth  and  substanc* 
are  relative  termn.  A  man  Is  looked  upon  as  wealthy  m  a  village,  who  wnulj 
by  no  means  be  considered  such  In  a  town  or  city.  Similarly,  the  wealthy  man 
of  the  larife  town  or  dmnll  e-Uy  wmiW  b^  nrrrmntpd  nothing  Of  In  London  or  New 
TorJt.  When,  therefore.  It  Is  laid  down,  that  a  bank  director  should  be  a  man  of 
means,  the  -easure  of  his  wealth  must  be  estimated  accordlns  to  the  rule  of  th« 
place  where  the  headquarters  of  the  bank  are  situated. 


8« 


BANKING    AN.)    COMMERCE. 


penon  on  the  board  who  hai  ■perial  knowledge  of  the  trade  carried  on 
hf  the  applicant.  Such  a  one  ran  give  valuable  hlnto  to  his  fellow  direct- 
on  or  a  manafper  with  regard  to  accounts  of  people  in  that  line  of  bu*l- 
neii:  alwayi  under  the  condition,  however,  that  they  iball  not  be  rivaU 
of  hit  own.    In  that  caie,  his  judgment  would  be  apt  to  be  warped. 

(5)  A  bank  director  should  be  a  man  w!io  can  work  in  harmony  with 
others.  A  cross-grained  and  self-opinionated  man,  a  man  who  considers 
that  all  wisdom  is  centred  in  himself,  and  cannot  bear  contradiction,  a 
man  who  is  unable  to  "give  and  take"  but  must  have  his  own  way  in  every- 
thing, and  at  all  times,  is  not  suitable  for  a  bank  director.  At  the  same 
time  no  man  sitting  at  a  bank  board  should  lie  content  to  be  a  mere  dum- 
my, unable  to  give  an  opinion  or  to  maintain  it,  giving  way  at  the  least 
sign  of  dissent,  agreeing  with  everything  and  having  no  mind  of  his  own 
about  anything.  A  board  com|>o$ed  of  men  of  that  kind  could  not  direct 
anything. 

(6)  A  bank  director  should  be  a  m^n  who  can  give  sufficient  time  to 
the  affairs  of  the  bank  to  make  himself  acquainted  with  them  generally, 
who  can  attend  bourd  meetings  with  sufficient  regularity  as  to  make  his 
influence  felt. 

(7)  A  bank  director,  lastly,  should  be  a  good  judge  of  the  capacity 
of  men,  for  a  most  important  part  of  his  duties  is  to  make  appointment* 
to  the  higher  offices. 

A  Bank  Directob's  Duties. 

Such  being  the  qualifications  of  a  bank  director,  it  remains  to  be  con- 
sidered what  may  be  counted  as  his  dutUt,  and  how  they  should  be  dis- 
charged ;  in  fact,  what  a  director  should  do.  and  what  he  should  not  do. 

(1)  It  is  clearly  the  duty  of  the  directors  to  see  that  the  officers  of 
the  bank,  especially  those  of  the  higher  grades,  be  men  of  proper  capac- 
ity; also,  to  see  that  they  are  properly  remunerated  according  to  the  gen- 
eral standard  in  such  matters,  and  that  proper  provision  is  made  for  them 
in  case  of  retirement  in  advancing  years. 

(2)  It  is  above  all  the  duty  and  province  of  the  directors  to  see  that 
the  loans,  discounts,  and  investments  of  the  bank  are  made  with  due  cau- 
tion and  on  proper  security.  No  attention  to  other  departments  of  the 
business  can  atone  for  inattention  to  this.  For  in  this  lies  the  key  to 
success  or  failure.  It  is  the  one  thing  to  which  all  others  are  secondary. 
The  directors,  therefore,  will  see  that  all  important  transactions  of  that 
kind  shall  be  submitted  to  them  for  consideration,  saving  only  such  small 
matters  as  may  safely  be  left  to  the  officers.  They  will  also  require 
statements  to  be  laid  before  them  at  every  mecv  ig  of  all  important 
transactions  that  have  transpired  in  the  interval.  And  to  such  statements 
they  will  give  such  attention  as  will  enable  them  to  have  a  dear  appre- 
hension of  the  business  the  bank  is  doing. 

It  has  not  seldom  happened  in  the  case  of  the  failure  of  a  bank  that 
there  were  on  its  board  of  directors  men  of  conspicuous  ability  in  their 


DIRECTORS  OF  AX  INCOHPOBATED  BANK.  33 

own  linr  „f  huiinrwi  nnd  the  qur.linn  w,.  grnrr.llv  ..Iced,  how  w»  II 
tlMl  ilucl.  mrn  could  nilow  Ihr  Innk  to  drift  into  .uc.  .  poiltion?  They 
would  never  h.ve  dreamed  of  nllowing  their  own  buiine..  to  become  w 
nvolved:  how  wa.  It  the,-  allowed  it  In  the  c».e  of  o  b,nk  .t  .ha.e  bo.nl 

1  "ft  ■  1°°^  "'"'  '''•""'  ■  "  "  "»  ''"•'"■'  »"■""  '»  '-^h  "i""™ 
to  plead  tl,.t  th.y  were  m.t  lnfum.0,1  of  the  tr.n..ction.  by  which  lotin 
lud  been  .uiUinedj  .till  lew  Ih.t  they  h.d  not  time  to  examine  .t«te- 
ment.  put  before  them;  le..l  of  all  that  they  tnirted  .11  ,ueh  nmtter.  to 
lie  manager.  There  are  undoubtedly  number,  of  matter,  th.t  mu.t  be 
trujled  to  the  manager;  and  it  cannot  Ik-  pretended  that  a  board  of  di- 
rector, ihall  be  acquainted  with  the  multitudinou.  .mall  transaction,  that 
make  up  .o  much  of  the  tolal  bu,ine..  of  the  bank.  But  e.p..rience  .how. 
tliat  aa  a  rule  it  1.  not  in  the  •mailer  Iranaaetioni  of  a  bank  that  li».e> 
arise  of  aufticirnt  amount  in  the  aggregate  to  cau.e  a  bank  to  fail.  It  i. 
Invariably  the  case  that  the  failure  or  . mbarra..nient  of  a  bank  arise, 
from  the  failure  or  emliarrns.m.  nt  of  a  comparatively  .mall  number  of 
iU  largeit  cn.tomer..  Tlie  bank  may  have  Ave  thousand  small  customers 
whose  transactions  no  Iward  of  director,  can  take  rlTeetivc  cogni.ance  of. 
But  although  there  will  be  an  average  of  loue.  from  .uch  trsnsactiona, 
the  average  will  never  be  high  enough  to  eauM  seriou.  difficultv.  But  the 
•ame  bank  may  have  on  its  books  twenty  or  thirty,  or,  in  the  ease  of 
a  very  large  Institution,  with  widespread  connection.,  forty  or  fifty  ac- 
counts of  considerable  magnitude.  It  is  within  such  a  narrow  circle  as 
this  that  the  stomis  of  the  banking  world  strike. 

Now,  it  i.  plainly  within  the  power  of  any  board  of  director,  to  keep 
an  efficient  oversight  over  such  a  small  number  of  customer,  as  this. 
Amongst  the  circle  of  large  customer.,  there  will  be,  to  a  certainty,  a 
proportion  that  practically  do  not  require  watching  at  all;  firm,  of  un- 
doubted strength  and  capitol,  whose  aceounU  are  so  conducted  a.  to  give 
evidence  of  their  soundness.  But  there  will  almost  certainly  be  a  propor- 
tion to  which  directors  should  give  clo.e  attention;  make  elo.e  enquiries 
of  the  manager,  and  be  ready  to  check  any  signs  of  irregularity,  or  what 
might  lead  to  danger.  It  is  with  reg.ard  to  this  smaller  circle  that  the 
director,  .hould  distinctly  no(  leave  everything  to  the  manager.  For  if 
they  do,  they  can,  very  fairly  be  held  up  to  reprobation,  if  matter,  go 
wrong. 

With  regard  to  thew,  the  director,  should  reqi.irc  eonitant  and  full 
information.  Long  and  voluminou.  lists  of  comparatively  small  transac- 
tions it  would  be  impossible  for  them  to  keep  trick  of,  unless  they  were 
prepared  to  spend  the  whole  of  their  lime  al  the  bank.  But  any  body  of 
director,  who  take  their  duties  and  re.pon.ibilitie.  seriously  can  keep 
track  of  this  small  number  of  accounts  within  the  time  that  director,  n  ay 
reasonably  be  expected  to  give  to  the  business.  Not  that  they  need  never 
extend  their  observations  beyond  this  circle.  A  director  may  well,  at 
times,  extend  hi.  observations  over  transactions  of  a  second  and  third 
order  of  magnitude  and  particularly  those  with  regard  to  which  he  ha. 
I 


r 


M 


BANKING  AND   COMMEBCE. 


•prcl.l  knowlodir.  And  br.ldc  thli  duty  of  Individual  dlrrolon  It  i« 
dniriibic  lor  Ihr  whole  board,  at  tlmri.  to  xaminr  the  whole  biuin». 
done  at  a  certain  branch,  and  If  needful  to  give  dlrectiou  retpecting  It, 
By  following  thU  method  the  whole  bnilncH  of  the  bank  can  be  brought 
under  review  at  lea»t  on.  a  year.  But  let  It  be  repeated,  the  circle  of  Im- 
portant account!  ahould  be  before  the  directora,  not  once  a  year,  nor  even 
Mcc  a  month,  but  eonatantly.  For  when  a  large  Arm  or  trading  companj 
bcglna  to  go  wrong.  It  ii  apt  to  go  wrong  at  a  conitantlr  accelerating 
pace.  And  its  couric  may  be  lomething  like  that  of  runaway  honei— 
rapidly  getting  beyond  control  and  ruihing  on  to  deilruction.  In  one 
•hort  month  all  thli  may  develop,  and  if  director!  intermit  their  atten- 
tion to  large  account!,  even  for  thii  period,  they  may  awake  to  «nd  that 
one  of  them  hai  gone  wrong  to  aiich  an  eilrtit  that  an  enormoua  loaa  l» 
!Uring  them  in  the  face.  It  wai  one  large  account,  rapidly  developing 
miichlef,  that  ruined  the  Royal  Bank  of  Liverpool.  Four  large  account! 
brought  the  City  of  Glaagow  Bank  to  the  ground.  Yet  the  hundred!, 
Indeed  It  may  be  laid,  the  thon!andi,  of  it!  !maller  account!,  even  of  thif 
bank,  were  on  aa  good  a  footing  a!  thoac  of  the  reit  of  the  Scotch  banka. 
In  thi!  caw.  too,  the  cour!e  of  deterioration  wa!  very  rapid.  The  !ame 
may  be  aaid  of  the  Weatern  Bank  of  Scotland.  And,  referring  to  Cana- 
dian banka,  one  of  the  largcat  of  them,  the  Commercial  Bank  of  Canada, 
waa  ruined  by  one  account,  another  by  aome  all  or  leven,  other!  by  two 
or  three, 

II  would  be  a  de!irable  point  of  adminlalration  for  the  director!  of 
every  bank  to  reqrire  to  be  laid  on  the  table,  at  every  meeting,  a  alale- 
mcnl  of  all  advancea  amounting  to  a  certain  aum  and  upward!,  at  all 
point!;  the  amount  of  the  minimum  to  be  proportioned  to  the  magnitude 
of  the  whole  boiine!!.  Thia  ahould  not  be  in  too  much  detail,  but  in  auch 
a  ahape  that  it  could  be  readily  taken  in  and  underatood  at  a  aingle  aitting. 
If  detail!  are  wanted  in  the  caie  of  any  account,  they  could  be  called  for 
and  furnlahed  by  the  general  manager  at  the  next  ritting. 

It  l!  needle!!  to  add  that  if  the  hank  haa  large  inveatmenta,  such  aa 
conaiderable  holding!  of  debenture!  and  bondi,  thc!e  ihould  be  examined 
and  crltici!ed  by  director!  olao.  They  generally  conaiat  of  conaiderabic 
anm!  of  any  one  aecurity,  and  may  be  looked  over  without  a  great  expendi- 
ture of  lime." 

IB  ThM«  obB«rv!tlonfl  are  founded  upon  the  theory  that  the  board  of  director* 
ahould  conilit  of  men  who  are  not  only  men  of  character  and  Influence,  but  men 
who  underatand  the  bualnega  of  the  country,  and  al«o  have  a  aubelantlal  Intereat 
In  the  bank.  It  li  a  fact  within  the  author's  hnowtedce.  that  In  a  certain  areat 
bankinc  corporation  that  failed  the  directors  collectively  held  no  more  stock  than 
would  have  Iwen  considered  much  too  small  for  any  one  of  them  to  hold  Individ- 
ually. This  was  before  the  present  Banklna  Act  was  passed.  Tet  the  capital  of 
this  bank  placed  It  In  the  front  rank  of  the  banklni  corporations  of  tlie  country 
Theee  directors,  loo.  consisted  almost  wholly  of  men  who  had  no  practical  ac- 
quaintance with  business. 

In  another  case  of  the  failure  of  a  areat  bank  In  the  same  part  of  the  country, 
the  dlreetoia  were  lariely  retired  aentlemen  or  pollllclans.  On  one  occasion  when 
en    Important    business    account    was    under    discussion   by  the  board      one  of  Its 


DIHECTOHS  OF  AN  INCORPORATED  BANK.  ,,, 

Tub  Pheiidbnt, 

o««rl.,..  ,  ,„1,  ...lied  „„,  p"  vM  .  •"'I.S«."'nd,  Ihc  presiding 

t!»f  •  '""^  p"*  "f  ••" "-  to  tCff.  rVo7. ;".;:  r/vt  *"' 

«r  .h.ii  ic^  „„,  o„i^hV.h.ir.„  of  thVi^H  j.T'"  "*.;?" 

functioiu  above  deicrilxd      I-  in.  Vi.  '     "'  ««'«'•«  Uie 

In  the  United  State!  an  enlipcly  different  order  of  H.l„~  i. 
|ai7  coo,,  to  p„vail,  thongh  it  doe.'not  prevalrjoterl^.f^'-"  «'^;- 

ne«,  having  a  poaition  in  the  com"„„  /^r^^X."  fir  °« '"t 
tte  bank,  like  the  Chairman  of  an  EnglL  3      He  f.    "  rj  "", 

^There  are  both  advantage,  and  diaadvantage.  in  Ihi,  method.     The 

connection  ,1th.     The.,  cm.  to  b.  "S  ,o    «  JIT-  ?""  '**  ""»   '°" 

»rot.,...    NMl...  i„  „,.  that  thrba^k  7r»Jf;  ""cHnw.  a.  Mr.  u.; 

other  loan.  „,  ,^,  „;,„„„a7'"'""'  "  ""•  '°"«  ""'w  out  o(  poM.h-.l  .aa 


36 


BANKING    AND    COMMERCE. 


a-lvantages  are  that  such  a  president  carries  more  weight  and  authority  In 
the  bank's  daily  administration,  by  reason  of  his  being  a  director.  The 
disadvantage  is,  that  he  docs  not  move  about  in  the  commercial  community 
and  acquire  information  as  a  commercial  chairman  of  the  board  would  do. 
This  is  a  serious  practical  drawback.  It  is  a  disadvantage  also  to  the 
man  himself,  that  though  a  salaried  officer,  and  his  livelihood  being  de- 
pendent upon  his  continu-ince  in  office,  he  is  subject  to  an  annual  election. 
There  is  this  further  to  be  said,  that  it  is  much  more  difficult  for  the  rest 
of  the  board,  in  case  of  need,  to  criticise  unfavorably  the  actions  of  one  of 
their  own  number,  than  if  he  were  simply  an  officer  and  not  a  director. 
And  there  is  more  dangci,  under  such  an  arrangement,  of  matters  being 
left  wholly  to  the  president  and  of  his  being  allowed  to  administer  the 
afTairs  of  the  bank  without  efficient  check. 

But  some  American  bank  presidents  are  men  who  correspond  to  the 
English  chairman  of  a  board  and  who  have  large  interest*  outside  the 
bink. 

In  Canada,  the  position  of  president  is  somewhat  midway  between  the 
English  anil  the  American  position.  He  is  always  styled  president,  and 
not  chairman.  And  he  <iigns  statements  and  documents,  especially  the 
annual  report  to  the  stockholders.  But  he  is  in  no  respect  a  salaried 
officer,  but  a  man  moving  about  in  the  community,  and  having  interests 
of  a  business  character  or  otherwise,  apart  altogether  from  the  bank.  He 
is  always  a  man  of  position,  and  generally  a  man  of  wealth.  Sometinm 
he  has  been  the  founder  of  the  liank,  and  is  the  largest  stockholder  In 
it;  naturally  therefore  being  chosen  president  year  after  year.  In  this 
case  he  will  have  a  somewhat  dominating  influence,  overshadowing  the 
other  directors,  and  exercising  more  influence  in  tfae  management  than 
all  tfae  rest  put  together.  This  influence,  moreover,  is  immensely  increased 
by  the  fact  that  under  the  Canadian  law  votes  at  the  annual  meeting 
(when  directors  are  elected)  can  be  by  proxy,  and  that  it  is  an  almost 
universal  custom  for  such  proxies  to  be  given  to  the  president.  He  thus 
carries  the  election  of  the  directors  in  his  hand.  These  are  well  aware 
of  it,  and  the  fact  cannot  but  affect  their  course  of  action.  For  the 
power  that  proxies  give  is  no  mere  nominal  one  in  practice.  It  has  more 
than  once  happened  in  Canadian  banking  that  some  director,  having  given 
umbrage  to  the  president,  has  found  himself  rejeiited  on  tfae  day  of  the 
annual  meeting,  much  to  his  surprise  and  annoyance,  solely  by  the  preil- 
dent's  proxies.  Such  a  president  is  apt,  at  times,  to  assume  functions 
that  properly  pertain  to  a  general  manager;  a  condition  of  things  that  is 
generally  detrimental  to  the  bank's  interest. 

There  have  been,  however,  presidents  in  Canada  who  corresponded 
much  more  closely  to  the  American  officer  of  that  name.  But  these  have 
invariably  been  men  of  exceptional  ability  and  experience,  who  huve  been 
general  managers,  and  were  given  the  title  and  position  of  president  as  a 
matter  of  honor,  without  the  smallest  difTerence  being  made  tn  their  duties 
or  remuneration. 


DIBECTOBS  OF  AN  INCORPORATED  BANK.  37 

Committees  op  DiREcions. 

l„.,Il"T  ■'""'".'  "'^"""y  "•°«^  of  «'"t  m»gnilude  .nd  wid«pre.d 
f^^'  ^l'  '"""■""■'•  f"  ""=  "  ■"<•"■  <•<-"."..««.  of  the  board  to  k 
fomrf,  e.ch  com^ttro  having  „  ,„peni.i„„  over  certain  brancho.  or  of 
certain  department,  of  the  bu.ine...  It  cannot  be  con.idered  a  de.ir- 
abk  pl«,,  a.  .t  lend,  to  divide  the  intere.t.  of  director,  and  prevent  their 
»  *.r.'  *!"'  """P"-l'™i°»  of  'he  whole.     It  can  never  be  for- 

gotten that  eve^  director  i,  re.pon.ible  to  the  rtoekholder.  for  every  part 
of  the  bank  .  admini.tration,  and  that  it  would  be  no  proper  an,wer"  for  a 
d.reelo,  .n  ca,e  of  heavy  lo.,  or  di.„ter  to  .ay  that' it  did  not  occur  in 
h»  department.  On  th,  other  hand,  a  .mall  committee  con.irting  of- 
lel  u.  MT-the  pre.ident,  the  vice-president,  and  another  member  of  the 
ooard,  may  sometime,  be  formed  inio  a  commllet  of  reference  Thi. 
pl«.,  however,  will  only  work  when  the  member,  of  .uch  a  committee 

l!pir„f  .if"^'  ""1  ■'""*'',';"-''  S^"'  ■""'e  «■»=  «°  the  bu.ine..  than  the 
re.t  of  the  board.  But  all  ,ueh  arrangement,  for  co„.mittec.  are  apt 
to  work  d,..dva„tageou.ly  because  of  their  tendency  to  .hift  re,pon,i- 
bility  from  the  general  manager  and  to  prevent  hi.  eierei.ing  the  full 
meamrc  of  hi.  eopacUy  in  hi,  office.  Every  benefit  that  could  rea«.n.bly 
.  "T!f  f™"'/"'"^''  «  eommiltee  would  be  attained  by  frequent  meet- 
ing, of  the  board  ,ay,  twice  a  week,  and  by  making  it  the  intere.t  of 
director,  to  attend.  A  daily  meeting,  which  ha.  been  practiced  in  some 
ca«.,  it  apt  to  degenerate  into  an  occasion  for  talking  politic,  or  go..ip. 
Local  Director.. 
Thee  are  authorised  hy  the  Banking  Act,  but  the  law  give,  no  power 
of  management,  and  place,  no  rcspon.ibility  upon  .uch  director.,  though 
they  may  be  of  great  service  in  di.tant  branche.,  provided  they  are  men 
wno  can  inHuenee  business,  or  give  useful  information  to  the  manager. 
The  be.t  local  director  to  be  found  will  sometime,  be  the  Kilicitor  of  the 
Bank,  provided  he  has  no  other  interest.. 


')| 


CHAPTER  Vn. 

orrioERa    or    an    inoorporated    bank    havino 

BRANCHES— THE  GENERAL  MANAGER. 


The  General  Manager  • 

RETART. 


■The  Inspector — Chief  Accountant — Sec- 


THE  ofRce  of  general  manager  is  the  lost  stage  in  the  evolution  of  the 
goTcrnraent  of  n  joint-stock  bank^  so  far  as  ofHcera  are  concerned. 
The  work  only  arises  when  a  bank  has  arrived  at  the  stage  of  de- 
velopment where  the  bank  has  many  branches,  each  with  a  manager  at  the 
head  of  it.  To  supervise  all  these  subordinate  managers,  to  give  them  direc- 
tions from  time  to  time,  and  to  make  all  their  operations  harmoniie  with 
the  workings  of  the  bank  as  a  whole  under  the  directors,  is  the  duty  of  the 
general  manager.  The  title  implies  not  merely  that  he  has  heads  of  de- 
partments under  him — for  that  the  manager  of  a  single  office  has — bat 
that  lie  has  managert  under  him,  each  of  whom  has  the  control  and  re- 
sponsibility of  his  own  office.  The  position  of  general  manager  is  some- 
what analogous  to  that  of  an  admiral  of  a  fleet,  which  fleet  consists  of  a 
number  of  ships,,  each  being  under  the  command  of  a  captain  who  is 
supreme  in  Iiis  own  sphere.  The  first  and  second  officers  in  such  a  ship 
will  take  their  directions  from  the  captain,  while  he  in  turn  is  subject  to 
the  order  of  the  admiral.  The  admiral  himself  is  subject,  as  to  matters 
of  general  policy,  to  the  Government.  It  is  the  admiral,  however,  who  is 
looked  to  to  insure  success  in  the  operations  of  the  fleet.  If  these  opera- 
tions are  successful  the  honor  is  his;  if  unsuccessful,  the  disgrace  of  fail- 
ure appertains  to  him.  The  analogy  between  this  and  the  functions  of  a 
general  manager  is  very  close.  He  is  a  servant  of  a  board  of  directors 
who  are  eiitrusted  by  law  with  functions  of  government.  But  for  actual 
and  efi'ectual  carrying  out  of  these  functions  they  are  largely  dependent 
upon  the  general  manager.  He  gives  them  advice  both  as  to  matters  of 
general  policy  and  as  to  the  details  of  operations.  This  ad>ice  they  may 
take  or  refuse  at  their  pleasure.  They  may  modify  it,  suggest  changes, 
or,  if  they  think  well,  rejeet  it.  This  they  have  the  power  to  do.  But  to 
reject  entirely  the  advice  of  a  professional  banker  In  any  matter  of  im- 
portance, involves  responsibility,  and  directors  will  scarcely  take  such  a 
step  unless  for  very  good  reasons.  This,  certainly,  should  only  occur 
rarely  in  practice,  for  to  be  often  rejecting  the  advice  of  a  general  man- 
ager would  be  a  sure  indication  for  the  necessity  of  a  change.  His  posi- 
tion with  regard  to  the  managers  under  him  is  one  of  undisputed  author- 
ity. It  is  to  him  they  look  for  direction  as  to  the  course  of  the  business 
of  the  branch.     And  his  orders  they  must  obey.     Otherwise  there  would 


OFFICERS   OF    AN    INCORPORATED    BANK.  S9 

be  danger  of  aerioui  mischief  to  the  bank  as  a  whole.  For  branch  man- 
agers to  fancy  they  can  appeal  to  the  board  against  a  general  manager's 
directions  would  speedily  bring  about  a  dislocation  of  the  whole  business. 
Each  branch  manager,  however,  is  supreme  in  his  own  sphere.  To  him 
his  officers  look  for  directions,  and  his  orders  they  must  obey. 

There  may,  of  course,  arise  extraordinary  circumstances  in  which  this 
order  of  things  is  set  aside,  but  the  foregoing  must  be  taken  as  ordinary 
practice. 

To  understand  properly  the  responsibilities  of  a  general  manager  it  is 
needful  that  the  powers  and  functions  of  each  branch  of  the  bank  should 
be  understood.  Every  individual  branch  carries  the  full  powers  and  re- 
sponsibilities of  the  bank  within  iUelf.  To  the  general  public  and  to 
the  body  of  customers,  the  "branch"  is  the  batilc.  For  every  dollar  of 
money  deposited  in  the  branch  the  whole  bank  is  responsible.  For  every 
engagement  to  lend  money  or  to  transmit  money  the  bank  is  responsible. 
This  is  the  strength  of  the  b^^^ch  system  so  far  as  the  public  is  con- 
cerned. But  there  is  a  reverse  side.  For  every  failure  in  these  respects 
the  whole  bank  is  responsible.  If  at  a  certain  branch,  even  the  least, 
there  were  a  failure  to  perform  any  of  the  engagements  it  had  entered 
into,  the  whole  bank  would  be  discredited.  It  is  under  these  circum- 
stances— and  they  press  upon  him  constantly — that  a  general  manager 
exercises  the  functions  of  his  office.  These  functions  may  be  summed  up 
in  one  sentence.  It  is  his  business  to  see  that  every  branch  during  every 
day  is  properly  equipped  and  managed;  th.it  it  has  a  sufficient  and  im- 
mediately available  supply  of  money  of  every  kind  for  the  wants  of  cus- 
tomers and  the  public;  that  the  money  lent  at  the  branch  is  lent  safely 
and  according  to  directions;  that  the  bills  discounted  are  good  bills;  that 
the  securities  taken  for  loans  are  according  to  law;  that  delinquent  cus- 
tomers are  sharply  looked  after;  that  proper  men  are  appointed  to  the 
various  departments;  that  the  accounts  are  properly  kept;  that  proper 
statements  of  the  business  arc  forwarded  to  be  laid  before  the  directors 
and  to  be  reported  to  the  Government,  and,  finally,  that  the  cash  on  hand 
always  corresponds  with  the  amount  shown  in  the  books. 

This  is  a  large  line  of  responsibilities,  but  they,  every  one,  fall  upon  a 
general  manager  day  by  day.  It  is  to  enable  him  to  fulfil  them  that  he 
requires  a  staff  tit  officers  whose  duties  are  of  an  entirely  different  de- 
scription from  any  that  have  been  named  hitherto.  The  work  of  a  general 
manager  is  thus; 

1.  A  work  of  supervision. 

S.  A  work  of  audit. 

S.  A  work  of  control. 

To  enable  him  to  perform  these  functions  he  has  in  his  department: 

An  assistant  general  manager. 

An  inspector  and  officers  under  him. 

A  chief  accountant  and  officers  Uilder  him. 

A  secretary  with  officers  under  him. 


nr 


40  BANKING    AND    COMMERCE. 

In  addition  to  theie  will  be  an  officer  in  charge  of  the  stock  regitten 
and  dividends.    The  most  imporUnt  officer  in  the  department  is 

The  Inspector. 

This  officer  is  usually  a  man  of  considerable  banking  experience,  and 
he  has  generally  been  a  branch  manager.  He  visits  the  branches  and 
makes  a  perfect  audit  of  the  accounts  and  examination  of  the  cash  and 
securities.  The  time  of  the  inspector's  visits  is  confidentially  arranged 
with  the  general  manager,  so  that  his  arrival  may  not  be  anticipated  and 
prepared  for.     For  if  it  were,  the  object  of  the  visit  would  be  frustrated. 

In  former  days,  when  practical  banking  was  not  so  well  understood, 
and  no  officer  was  set  apart  to  the  work  of  inspection,  it  was  customarj 
for  the  president  to  make  a  tour  of  the  branches,  taking  an  accountant 
with  him  to  assist  in  the  details  of  the  inspection.  But  so  liltlt  was 
thought  of  the  importance  of  secrecy  in  these  visits  that  it  was  generally 
known  throughout  the  branches  that  the  president  w.-"*  on  his  annual  tour 
and  might  shortly  be  expected.  It  was  even  sometiuts  mentioned  as  an 
item  in  the  daily  papers.  Of  course,  in  that  condition  of  things  prepara- 
tion was  made  for  his  visit.  It  is  known  to  the  writer  that  on  an  occa- 
sion of  this  kind  the  manager  in  a  large  city  branch  was  actually  advised 
that  the  vice-president  of  the  bank  would  be  visiting  the  city  shortly  and 
would  take  the  oppprtunity  of  examining  hin  branch.  At  that  very  time 
great  irregularities  were  occurring  in  the  management,  improper  loans  to 
a  large  amount  being  carried  on  by  overdrafts,  and  false  statements  sent 
week  by  week  to  the  head  office  to  conceal  them.  The  manager,  being 
apprised  of  the  approaching  visit,  took  the  pains  to  transfer  all  the  car- 
rent  accounts  to  a  new  ledger  and  managed,  by  borrowing  checks  and 
concocting  fraudulent  f  itries,  to  make  the  irregular  accounts  appear  cor- 
rect The  visit  took  place,  the  books  were  balanced,  the  accounts  were 
examined,  and  all  was  reported  in  order.  Shortly  afterwards,  circum- 
stances transpired  which  rendered  further  concealment  impossible.  The 
manager  came  to  ■  p  head  office  of  the  Kink  and  made  a  confession  to  the 
directors,  though  He  did  not  confess  all.  A  trained  officer  was  at  once 
sent  down  to  make  examination.  The  whole  machinery  of  fraud  was 
then  brought  to  light,  and  the  manager's  trick  exposed  of  a  new  ledger 
being  opened  long  before  the  old  one  was  filled  up,  and  bogns  checks 
credited  to  the  fraudulent  account.  This  case  is  referred  to  in  a  subse- 
quent chapter  on  frauds,  but  it  is  noticed  here  to  show  the  folly  of  the 
old  inspecting  system. 

The  importance  of  the  audit  and  examination  hy  an  inspector  will  be 
evident  when  it  is  considered  that  it  is  by  reports  and  statements  from  the 
branches  that  the  whole  bank  is  governed.  It  is  only  by  sommariaing 
th.  -  statements  that  a  gi  neral  manager  can  know,  for  example,  whether 
the  law  with  regard  to  circulation  is  being  complied  with,  or  whether  the 
bank  as  a  whole  is  holding  adequate  reserves  of  cash  and  available  fundi. 
It  is  by  statements  from  branches  that  the  bead  office  can  judge  whether 


OFFICERS  OF  AN   INCORPORATED   BANK.  4] 

Ibey  are  doing  lonnd  biuincu  and  following  the  linea  laid  down  for  the 
govemment  of  nanagrri.  Yel  ht  can  not  know  that  the  ttalementt  are 
comet  eitxpt  b)  actual  tiamination  o»  the  tpot.  Whether  there  actually 
il  m  much  cash  at  a  certain  branch  aa  ii  represented,  whether  the  billl 
discounted  are  secured  as  they  are  reported  to  be,  whether  the  loans  are 
really  endorsed  or  guaranteed  by  the  parties  whose  names  are  entered  in 
the  lists,  these  and  many  other  important  matters  can  only  be  proved  by 
actual  examination.  An  inspection,  therefore,  is  of  vital  importance.  No 
general  manager  and  no  board  can  he  on  sure  ground  with  regard  to  the 
business  of  any  branch  until  an  inspection  has  been  made.  But  to  be  of 
value  the  inspection  must  be  thorough.  An  inspection  carelessly  made  is 
more  dan;ferous  than  none  at  all,  for  il  lulls  into  a  false  security. 

A  cose  once  came  under  the  writer's  notice  of  a  weak  manager,  having 
allowed  some  of  the  securities  for  an  important  account  to  lapse,  and 
being  afraid  to  confess,  went  on  reporting  advances  to  be  covered  as 
before.  The  supposed  endorsers  were  good  beyond  doubt  and,  according 
to  the  statements  rendered,  the  account  was  working  satisfactorily.  But 
when  the  ollice  was  examined  the  inspector  failed  to  notice  that  the  names 
of  the  snpposed  endorsers  were  not  on  the  paper.  They  had  in  fact  with- 
drawn their  names,  having  a  well-founded  suspicion  that  the  party  waf 
not  doing  well.  This,  however,  the  inspector  failed  to  notice.  The  head 
oJSce  being  lulled  into  a  false  security,  the  account  went  on  aa  aceonnti 
usually  do.  The  advances  increased  considerably,  but  the  business  was 
reported  as  enlarging  and  the  customer  aa  prospering,  and  the  endorse- 
ments made  the  account  perfectly  safe — apparently. 

But  n  subsequent  examinotion  of  the  office  revealed  the  fraud.  Twice 
before,  the  inspecting  officer  had  failed  to  notice  it,  but  he  discovered  the 
real  poaition  at  laat.  The  bank,  instead  of  advances  well  secured,  had 
no  security  at  all;  the  customer's  affairs  were  in  a  bad  condition ;  he  had 
been  going  from  bad  to  worse  ever  since  the  endorsements  were  with- 
drawn, and  was  utterly  bankrupt.  Now,  had  the  false  sUtements  of  the 
manager  been  discovered  at  the  first  examination,  the  account  would  have 
been  stopped  before  much  mischief  had  been  done;  the  customer  would 
have  failed,  but  the  bank  would  have  made  but  a  small  loss.  As  it  was, 
the  loss  finally  sustained  was  sufficient  to  wipe  out  all  the  profits  of  the 
branch  for  years. 

The  inspector's  business  is  therefore  one  of  eerification.  Examina- 
tions most  be  made  down  to  the  minutest  detail.  In  counting  bundles  of 
notes,  for  example,  an  i..jpector  must  not  make  a  cursory  handling  of 
each  bundle,  but  must  handle  every  note.  He  must  not  excuse  himself 
from  this  minute  examination  by  thinking,  "Oh,  it  is  impossible  that  such 
a  manager  or  such  a  teller  as  this  can  be  wrong."  The  very  reason  of  his 
office,  and  the  work  he  has  to  do,  is  to  prove  that  the)  are  not.  If  man- 
agers and  tellers  had  never  done  wrong,  and  never  could  be  guilty  of 
irregularities  and  frauds,  there  would  be  no  need  for  inspections  at  all. 
In  law  every  man  is  considered  innocent  untU  he  is  proved  guilty.    The 


BANKING    AND    COMMERCE. 


Inipector  who  doei  hit  work  thoroughly  will  proceed  on  the  aHumption 
that  everything  ii  wrong  until  he  him  proved  it  to  be  right.  He  will  be 
tpecially  careful  in  examining  caih  to  guard  againat  a  mode  of  manipula- 
tions by  which  a  parcel  can  be  handed  him  twice  over.  This  has  been 
done  to  the  writer's  knowledge  and  a  shortage  covered  up  thereby.  In 
examining  the  checks  on  hand  he  will  be  careful  to  notice  any  indication 
that  they  have  been  borrowed.  This,  too,  has  been  done  and  inspections 
passed  successfully  when  large  shortages  existed  at  that  very  time.'" 

It  is  Important  in  making  examinations  to  notice  any  slight  irregulari- 
ties and  probe  them  to  the  bottom,  for  a  very  trifling  iirtgularity  may  be 
a  key  to  the  discovery  of  nombers  of  others  extending  back,  perhaps,  for 
months  and  even  years.  For  example,  the  books  oi  a  certain  branch  on 
being  examined  by  an  inspector  were  found  to  be  irregularly  balanced. 
This  was  a  key  to  irregularities  that  had  been  going  on  almost  from  the 
day  the  branch  was  opened.  It  is  within  the  writer's  knowledge  that 
these  books  required  to  be  checked  over  again  from  the  very  opening  of 
the  branch  and  much  of  them  absolutely  rewritten.  The  flnal  result  of 
this  was  that  after  the  irregularities  had  been  rectified,  the  manager,  who 
was  of  course  dismissed,  had  to  make  good  a  defalcation  of  between  seven 
and  eight  thousand  dollars.  In  this  case,  if  the  inspection  had  been  loose 
and  inefficient  the  irregularities  would  certainly  have  gone  on  for  many 
months  longer,  and  the  deficit  have  grown  to  much  larger  proportions- 
It  should  be  noted  that  the  reports  and  statements  made  to  head  office 
from  this  branch  were  always  in  order.     No  amount  of  attention  there 

It  A  sad  revelatton  of  fraud  of  this  sort  transpired  In  a  branch  office  of  an 
Important  bank  many  years  avo.  The  senior  t«ller  waa  a  man  highly  reapectsd 
in  the  community.  He  had  Ions  held  hia  poaltlon.  which  was  an  unuaually  cood 
one.  It  was.  In  fact,  more  like  that  of  an  aaalBtant  nutnaser  than  a  teller.  He 
occupied  a  beautiful  place  In  the  ouUklrta  of  the  city,  and  hla  pretty  pony  carrlaae 
was  well  known  to  the  habltuea  of  the  streeta.  But  one  day  a  rumor  vot  about 
that  there  waa  somethint  wrona  with  hla  caah,  that  he  had  been  auspended;  then, 
soon  after,  that  he  had  been  dismlsaed.  It  proved  to  be  too  true.  Hla  face  waa 
seen  no  more  In  the  bank  and  hia  pony  carrlace  disappeared  from  the  streets;  his 
effeeu  were  aold  and  he  left  the  city  never  to  return.  The  truth  aradually  leaked 
out  A  considerable  ahortaye  waa  discovered  In  hla  cash.  Whether  It  waa  ever 
made  food  the  author  la  unaware,  but  It  la  an  undoubted  fact  that  the  shortaae 
had  Ijeen  foln*  on  for  a  conalderable  time,  and  that  the  oflAce  had  been  Inspected 
nor*  than  once  whllat  It  existed.  It  then  became  '.laown  to  bankera  In  the  city 
that  the  teller  had  observed  moat  carefully  the  movementa  of  the  Inspectlns  ofHcer 
and  had  succeeded  more  than  once  In  ascertalnlnv  very  nearly  when  a  visit  mlaht 
be  expected.  In  preparation  for  this  he  had  on  each  occasion  borrowed  checks 
from  his  friends  In  the  mercantile  community,  of  whom  he  had  many,  which 
cheoks  were  counted  In  amongst  his  cash  when  examined.  It  so  passed  muster. 
The  checks  were  of  course  never  presented.  This,  however,  can  not  often  be  re- 
peated.   The  resource  Anally  failed  him  and  discovery  followed. 

Upon  this  ease  a  remark  or  two  may  be  made.  The  manager  shouM  certainly 
have  notloed  the  style  in  which  his  officer  was  living.  His  salary  would  not  have 
allowed  him  to  occupy  such  a  cottage  with  grounda  and  to  keep  a  pony  carriage. 
This  tendency  to  overspending  should  therefore  have  been  checked  at  the  outset. 
In  which  case  all  the  subsequent  sad  developments  might  have  been  prevented. 
It  ahould  be  said  In  addition  that  I*  Is  almost  certain  that  there  waa  some  loose- 
ness In  the  style  in  which  the  Inspections  were  oarred  on.  otherwise  the  ahortag* 
would  have  been  discovered  at  an  earlier  stage. 


OKIICEHS  OF   AN    INCOHPOHATED   BANK.  43 

«ould  hme  rciulled  in  the  discovery.  But  discovrry  immediaWy  rMulltd 
upon  on  inspection  on  the  spot.  Yet  there  was  no  anterior  reason  why 
there  should  be  more  suspicion  of  this  branch  than  of  any  other,  for  the 
manager,  thougli  not  a  practical  banker,  was  a  man  of  high  standing  in 
the  community,  and  was  able  from  his  own  resources  to  make  good  the 
deficiency. 

This  audit  and  exaniinatlan  Is  a  sufficiently  onerous  business  in  itself 
to  occupy  all  the  attention  that  any  man  can  give  to  it.  In  the  examina- 
tion of  the  teller's  department  all  his  care  and  vigilance  will  be  needed  to 
ensure  that  the  cash,  including  checks  and  cash  items,  is  exactly  as  has 
been  represented.  It  has  been  known  that  a  teller  by  clever  sleight-of- 
hand  succeeded  in  passing  oil'  a  bundle  of  notes  twice  when  his  cash  was 
being  taken  over  by  a  successor.  The  examination  of  the  discounting  de- 
partment is  a  far  more  difficult  and  laborious  matter,  for  here  he  should 
not  confine  himself  to  the  mere  checking  of  the  amount  of  each  bill  and 
noting  whether  the  total  agrees  with  the  books,  but  ascertain  irhelhtr 
ntrg  bill  it  in  legal  form,  properlf  drawn  and  endoned.  proper  authdr- 
ity  being  held  for  such  as  are  signed  by  officers  of  corporations;  and  also 
that  proper  vouchers  have  been  received  for  all  the  bills  reuiitted  for  col- 
lection. It  is  also  his  business,  as  has  been  shown,  to  see  that  the  securi- 
ties for  loans  are  really  as  has  b«'en  represented  to  head  olfce. 

But  when  an  inspector  goes  beyond  this  business  of  verification  and 
expresses  opinions  upon  the  soundness  and  goodness  of  the  names  or  the 
•afety  or  otherwise  of  the  discounts  of  the  office,  he  is  going  beyond  his 
province.  For  in  this  case  he  is  conveying  not  information  but  simply 
opinions,  for  the  formation  of  which  he  has  only  had  slender  opportuni- 
ties. An  inspector  visits  a  branch  only  at  long  intervals,  and  can  not  pos- 
sibly have  the  materials  for  forming  a  judgment  as  to  the  goodness  and 
soundness  of  the  borrowing  customers  themselv  a.  It  is  his  business  to 
see  that  the  various  securities  are  Ihtrc,  or  that,  if  sent  away,  there  are 
proper  vouchers  for  them,  and  also,  what  should  never  be  overlooked,  thai 
they  are  exactly  as  they  have  been  represented  to  head  olfice.  But  when 
he  not  only  certifies  of  the  existence  of  bills  and  securities,  but  makes  re- 
ports upon  their  soundness  or  value,  he  raises  two  questions:  one,  as  to 
where  he  gets  his  information,  and  the  other  as  to  the  soundness  of  his 
judgment.  As  to  information,  in  almost  every  case  he  will  get  it  from  the 
manager.  His  report,  the:-fore,  will  be  a  mere  echo  of  the  manager's 
opinion,  and  consequently  of  no  value  whatever  as  a  check.  As  to  sound- 
ness of  judgment,  that  is  a  quality  not  always  possessed  by  an  inspector. 
It  has  been  known  that  an  Inspector  who  was  a  keen  and  vigilant  examin- 
ing ofiScer  was  lamentably  deficient  in  judgment  as  to  the  standing  of 
merchants.  To  suggest  to  head  oflice  that  the  advances  to  a  certain  cu^ 
lomer  were  not  on  a  good  foundation  because  they  fluctuated  so  much,  or 
that,  in  considering  the  position  of  a  certain  firm,  if  certain  assets  were 
left  out  they  eould  not  be  considered  solvent,  was  not  calculated  to  en- 
hance the  value  of  an  inspector's  opinion.     Ifet  both  instances  have  oc- 


♦♦  BANKING   AND    COMMERCE. 

cumd  in  bunking  pri!:<lcc  Thrre  can  be  no  doubt,  tbmforc,  that  for  « 
general  manager  to  get  into  a  habit  of  relying  on  the  opiafoa.  and  Judg- 
ment of  an  inipcctor  ai  to  the  loundneis  of  the  advancei  at  branches,  ia 
dangeroui.  The  value  of  an  in.peetor'i  work  i>  when  he  report!  what  he 
hal  K^en,  and  eoramunieatea  to  a  general  manager  vhat  the  latter  eannot 
otherwiae  knov;  .neb,  for  ewmple,  aa  that  .ueh  and  lueb  an  account  if  * 
very  inactive  one,  or  that  in  another  caae  the  deposit  account  of  such  a 
customer  showed  him  to  be  constantly  short  of  money. 

It  is  generally  placed  upon  the  inspector  to  report  upon  the  ofictrt 
of  the  branch.  But  here  again  he  should  only  report  aa  to  what  comes 
under  his  own  ohservation.  He  c«n  see  how  an  olfieer  does  his  work  dur- 
ing an  inspection,  and  how  the  books  in  his  charge  have  been  kept;  also 
whether  be  makes  out  statements  quickly,  and,  in  the  case  of  a  teller,, 
whether  he  is  accurate  and  courteous  in  attending  to  customers.  But  to 
express  an  opinion  as  to  the  general  value  of  an  officer,  and  whether  he 
is  worthy  of  promotion  or  otherwise,  is  to  go  beyond  his  province,  for  in 
the  coarse  of  a  few  days  he  eannot  have  sufficient  opportunities  of  obser- 
vation to  enable  him  to  form  an  opinion  that  could  safely  be  acted  upon. 

Above  all  things  the  error  must  be  avoided  of  allowing  an  inspector 
to  give  orders  and  directions  to  managers.  That  is  the  business  of  the- 
general  manager  alone,  if  an  inspector  is  allowed  to  do  this,  there  wil! 
be  the  proverbial  danger  of  having  "two  masters"  whom  it  is  impossible 
to  serve.  It  is  only  when  the  olBce  of  inspector  is  held  by  an  assisUnt 
general  manager,  as  it  sometimes  is,  that  orders  and  directions  can  prop- 
erly be  given  by  him.  But  In  that  ease  the  orders  are  given  invariably  by 
the  officer  as  assistant  general  manager,  not  as  inspector. 

In  the  case  of  an  inspector  the  old  saying  applies,  QhU  cMttot  c  it- 
todieif  Who  Is  to  inspect  the  inspector.'  Who  is  to  see  whether  he  la 
attentive,  efficient  and  reliable?  It  may  be  thought  that  the  directors  are 
the  persons  to  do  this.  But  the  work  can  only  be  properly  performed  by 
a  professional  banker,  and  the  proper  officer  to  eiamine  the  inspector'a- 
work  Is  the  general  manager. 

Directors  sometimes  conceive  that  an  inspector  should  be  independent 
of  the  general  manager,  and  that  his  reports  should  be  a  check  upon  hi* 
superior  officer.  And  it  has  been  known  that  an  inspector  has  endeav- 
ored to  work  himself  into  that  position.  But  it  would  be  dangerous.  In- 
deed, for  directors  to  listen  to  such  overtures,  for,  if  carried  out,  such  • 
course  would  introduce  an  element  of  anarchy  and  confusion  into  the 
business.  There  would  soon  come  to  be  two  governing  olficera — two  beads 
■ — each  having  independent  authority,  but  the  one  more  In  the  confidence 
of  the  directors  than  the  other.  There  would  inevitably  be  friction  in 
that  ease,  conflicting  ideas  of  man.igement  would  be  introduced,  contradict- 
ory directions  could  not  fail  to  be  given  to  managers  of  branches.  These 
officers  would  soon  discover  the  real  state  of  things,  and  ascertain  icAose 
dlreetioiis  they  were  to  follow.  This  would  naturally  be  the  officer  who 
was  in  the  confidence  of  the  board. 


OFFICEKS  OF   AN    INCORPORATED   BANK.  43 

To  put  the  cau  In  concretr  form:  The  general  manager  would,  for 
«xunple,  give  direction!  that  sueh  and  such  an  account  wai  to  be  handled 
carefully,  and  on  no  aeeounl  to  exceed  the  limit  fixed.  The  inipector, 
however,  might  uy  at  hi>  next  visit  that  the  account  wai  a  very  Mti.fac^ 
torjr  one  to  the  board,  and  that  close  reilrietion  was  not  desirable.  The 
branch  manager,  therefore,  being  placed  between  two  fires,  would  lose 
*ll  sen«!  of  responsibility  to  head  office,  and  as  he  could  not  please  both 
his  superiors  he  would  try  to  please  the  customer.  The  general  manager 
under  such  a  stale  of  thing.,  will  come  to  be  a  mere  "figurehead,"  having 
no  more  controlling  power  than  a  secretary. 

This  is  not  ..  fanciful  sketch  of  what  might  be,  but  a  description  of 
what  has  actually  occurred;  anarchy  and  misrule  prevailing  in  the  estab- 
Jishment,  and  losses  gradually  developing  which  ultimately  almost  brought 
the  bank  to  a  stop.  Yet  the  board  of  director,  was  one  of  the  ablest  bod- 
ies of  men  ever  brought  together  to  administer  the  affairs  of  the  bank. 

It  will  thus  be  seen  that  a  clear  understanding  of  the  inspector's  real 
functions  and  duties  is  of  essential  importance  to  a  joint-stock  bank.  His 
proper  functions  are  im|wrtant  enough  and  difficult  enough  to  perform 
without  intruding  into  the  office  of  the  general  management." 

The  Chief  Accountant. 
The  chief  accountant's  position  is  of  such  importance  that  he  is  re- 
<juired  to  join  with  the  president  and  general  maiugcr  in  certifyiug  the 
correctness  of  the  returns  made  to  the  Government.  He  receives  the  bal- 
ance-sheets of  all  the  branches,  examines  them,  compares  them,  checks 
the  items,  and  finally  summarises  them  in  one  general  statement  of  the 
cash,  the  deposits,  the  loans  and  discounts,  and  all  the  other  items  re- 
quired by  the  Bank  Act.  It  is  by  these  sUtements  that  the  board  and 
^neral  manager,  as  advising  them,  are  guided  in  the  bank's  general  ad- 
ministration, and  as  it  is  simply  impossible  for  a  general  manager,  still 
less  a  president,  to  verify  the  voluminous  details  from  which  the  state- 
ment is  made  up,  they  must,  perforce,  and  in  the  nature  of  things,  depend 
on  the  chief  accountant  for  the  accuracy  of  what  they  certify.  The  check 
upon  this  is  the  inspection.  For  the  inspector  examines  the  head  office 
department,  as  well  as  every  other  branch  of  the  bank's  operations. 

II  As  there  are  exceptions  to  every  rule.  It  Is,  of  course,  conceivable  tliat  an 
Inspector  on  vlaltlnv  a  branch  may  discover  cases  of  glaring  violation  of  rules 
dlsobeUlence  to  orders,  or  oven  positive  tniud.  What.  It  may  iKt  asked  Is  he  to  do 
in  such  circumstances  as  these?  It  Is  his  duty  at  once  to  communicate  to  his  head 
oHlce  In  cipher,  by  lele«rapb,  or  by  telephone.  If  he  can,  and  ask  tor  Instructions 
Ueanwhlle,  he  may  reasonably  uke  upon  himself  to  act  In  the  case,  stopplnc  It 
amy  be,  some  Improper  discount  about  to  be  put  throuth.  or  even  Eolnj  the  lenrth 
in  sn  extreme  case  of  taWnp  charge  of  the  office  himaelf,  pending  instructions 
But  he  would  In  any  such  case  take  such  a  course  under  responsibility  and  Incur 
«hs  danger  of  severe  reprimand  to  hhasalt  In  cass  he  made  a  mistake  of  Judgment 


BANKING    AND    COMMEBCE. 


TmI    SirRETAIir. 

In  the  grnrrnl  nmilil|trr't  (Icpiirtntrnt  frw  nffirrri  rrndrr  more  unrfof 
Mrrlce  than  nn  arlirr  nnd  viKilnnl  trcrrtary.  Tliii  offirrr  ihould  be  much 
above  the  rank  of  a  clerk,  although  hit  faculty  may  not  be  in  the  sphere 
of  managrment.  Imlerd.  it  hai  happened  that  a  ircretary  high  in  the 
confidence  of  the  board  and  highly  efficient  ai  a  lerrelary  may  prove  a 
lamentable  riilurc  on  being  i-ntrupited  with  the  reiponiibility  of  manage- 
ment 

It  ia  hii  butincH  to  keep  all  the  recordi  of  the  general  manager's- 
department  (including  the  voluminoui  itatementi  and  returni  made  there- 
to by  brnneh  managen),  after  they  have  been  examined  and  action  taken- 
thereon.  An  efficient  aecretary  will  not  only  keep  aueh  record*,  but  re- 
member their  general  rontenti,  and  be  able  to  anawer  the  general  man- 
ager's queitions  about  them  without  Ion  of  time.  All  the  correipondence 
of  the  general  manager  with  managen  of  branchei  will  pan  through  bis 
handi,  and  here  again  will  be  found  the  importance  of  an  accurate  mem- 
ory so  developed  that  he  can  answer  readily  such  questions  as  are  con- 
stantly arisin"  in  dealing  with  the  business  pf  branches.  "Was  not  suck 
and  such  a  manager  advised  about  this  matter  some  time  ago?"  the  gen- 
eral manager  will  say  to  himaelf  on  reading  a  branch  manager's  letters,- 
and  may  thereupon  dictate  a  letter  of  strong  disapproval  of  the  man- 
ager's conduct  in  the  matter.  But  reference  to  a  secretary  might  correct 
the  impression  that  was  leading  to  the  remonstrance,  and  show  that  this 
particular  matter  had  never  been  corresponded  about  at  all.  Or  the  error 
Buy  be  in  the  other  direction.  "Did  we  not  order  such  and  such  a  man- 
ager to  discontinue  taking  bills  with  the  name  of  such  a  one?"  the  gen- 
eral manager  will  say  to  his  secretary,  and  yet  here  he  is  passing  soeh 
biUs  through  his  books  still.  "Certainly,"  the  secretary  may  reply,  and 
proceed  to  turn  np  at  once  the  copy  of  the  letter  he  well  remembers  to 
have  been  sent  On  this  a  letter  of  remonstrance  will  be  written  of  a 
duuracter  that  no  branch  manager  would  dare  to  disregard.  For  want 
of  a  watchful  secretary,  a  general  manager  may  even  himself  give  con- 
flicting orders  after  intervals  of  time,  his  judgment  at  one  period  not 
being  exactly  the  same  as  at  another  period  owing  to  a  difference  of 
environment  A  general  manager  may,  under  the  influence  of  some  de- 
pressing news,  take  a  pessimistic  view  of  matters  In  general,  and  begin 
to  dictate  a  letter  to  the  manager  of  a  branch  expressing  serere  blame  for 
permitting  a  certain  account  to  assume  the  position  it  was  reported  to  be 
in.  Here  a  watchful  secretary  may  interpose  an  observation  like  this :  "I 
think  that  matter  was  the  subject  of  correspondence  some  months  ago; 
will  you  allow  me  to  refer  to  it?"  He  does  so  and  finds  that  the  manager 
at  that  time  reporting  upon  the  account  asked  permission  to  continue  cer- 
tain advances  for  a  time,  giving  reasons  therefor,  which  request  was  al- 
lowed. "The  time  has  not  yet  expired,"  the  secretary  might  say,  on  whicli 
the  general  manager  would  bold  his  hand,  and  instruct  the  secretary  to- 


OFFICERS  OF  AN  INCORPORATED  BANK.  47 

be  walrhful  of  Ibr  tltnr,  and  >«  tbat  tJw  paper  nferred  to  ma  Uwa 
Ktlrrd. 

Thoa  the  general  manager  ii  in  the  poaitlon  of  nuuuglBg  partner  of 
a  large  eaUhlUhment  who  thoronghljr  underatanda  hia  bnaUieaa  bat  baa 
trained  men  about  him,  each  with  atrictlj  deflned  linea  of  doty,  all  of 
whom  muit  be  in  hli  confidence,  all  obeying  hia  ordera,  jet  with  liberty 
to  make  angfinliant,  all  acting  together  like  a  complicated  macbiile,  wheel 
within  wheel,  all  mated  by  one  central  power,  and  all  conrerging  to  tbe 
one  nniform  end,  namely,  the  good  of  the  whole  body  of  th«  proprietora 
of  the  Inatitution. 


Il 


CHAPTER  nil. 
THB  lUOOUSrUL  MUOHAlfT. 

CONDITIOKI  AMD  CaUOH  OF  SvCCRM— ImPORTJIIVCI   Of   CARirUL   BtrTIXt 

— Thi  OrricB— Thi  Wahhouu— Thainiho  im  B vh !■■•■— Eli- 
umttn  or  a  Good  Salumam- -KNowLBnoi  or  Gooh — Knowlidoi 
OP  Miir. 

BEFORE  a  bankrr  can  do  a  succruful  buiiiKM,  there  muit  be  (iic- 
ceiiful  inerchant«>  manufacturers,  or  farmeri,  In  the  conununlty. 
It  U  for  this  reason  that  the  consideration  of  their  business  comet 
at  this  stage. 

Some  yean  ago  there  was  published  in  England  a  very  readable  book 
entitled  "The  Successful  Merchant,"  in  which  was  described  the  career 
of  a  Bristol  trader  who  was  not  only  a  successful  man  himself,  but  the 
foander  of  successful  firms  that  bear  his  name  to  this  day.  The  success 
of  this  merchant,  it  is  evident,  was  not  due  to  speculative  ventures  by 
which  some  men  seek  to  acquire  a  fortune  rapidly,  but  to  perfect  knowl- 
edge of  hia  own  line  of  business,  combined  with  industry,  shrewdness  and 
rectitude.  It  becomes  evident,  too,  that  this  is  the  reason  why  the  busi- 
ness he  founded  has  continued  to  flourish  In  the  hands  of  his  successors. 

It  is  essential  to  the  success  of  a  banker  that  the  mercantile  customers 
with  whom  he  deals  shall  be  on  the  whole  successful  men;  otherwise  they 
will  cause  him  loss  and  embarrasimcnt,  even  though  he  holds  what  is 
called  "security."     For  security  in  many  instances  fails  to  secure. 

It  is  equally  essential  to  a  merchant  that  his  customers  shall  be  also 
successful.  If  they  are  not,  their  failure  will  result  in  even  a  larger  pro- 
portion of  loss,  seeing  that  generally  the  merchant  gives  credit  without 
security  at  all. 

The  losses  of  both  banker  and  merchant  may  be,  and,  indeed,  not  sel- 
dom have  been,  serious  enough  to  bring  both  into  embarrassment,  in  fact, 
they  continually  act  and  react  on  each  other.  The  study  of  the  causes  of 
success  and  failure  is  therefore  one  that  practically  comes  home  to  both. 

COKOITIOHS  AND  CaVUS  OP  SuCCISi. 

Let  us  first  consider  the  conditions  and  causes  of  success.  ^Vhen  a 
person  enters  upon  any  line  of  commercial  business,  as  distinct  from  mere 
speculation/'  he  will  find  that  the  first  element  of  success  is  knowledge  of 
goods :  that  is,  what  goods  are,  where  they  are  to  be  bougie  to  advantage, 
what  is  the  right  time  to  buy  them  and  how  to  place  them  to  advantage. 

IS  Th«  dlir«r«ne«  b«twnii  th«  merchant  and  the  speculator  is  that  the  mer- 
chant handles  the  aoods  he  deals  In.  and  therefore  requires  to  be  a  Judse  of  their 
qualltr  and  tultabllltr;  while  the  speculator  rarely  handles  the  merchandise  In 
which  he  QtecutBtes.  and  could  not  tell  good  c-jtloti  or  grain  from  bad.  His  bual- 
nesa  la  simpir  to  watch  the  markets,  and  to  buy  or  sell  on  change.  For  his  opera- 
tions he  needs  neither  a  warehouse  nor  stock. 


THE   SUCCESSFUI.   MERCHANT.  «, 

wl™.  t.",,.        "  ,  "„"j  ^:  "*7  'o  '"P'y.  -'»«  to  giv.  Ih™  ,„  do,  lo 

"«l  "".ngr  thtn.  for  ,.£  Z.,.  "«  «»«i>  d"ll  In;  how  to  „rt 

«xr  whtt,!'^;:  .r-h"  r:^r^^^^^-^ 

bought  .trictiy'r™™  n,.„ro,:„r-,ho„hl;iirld  .'■■:''';.;''  "■* 

fwturr  thra.    and  wh,„,       a         /  ..  "''  °"'  "''°  ''"'  "•""- 

i...h.r  i„f„™..":^  ;i",„,4"  -';"„■»-  «"''°--""'  -"'  "-^  •" 

Umn   hr  .kl.  . ■".>"""»  nifn  not  in  the  ume  house,  and  will    at 

«-.,  be  able  to  eon,n,„„ie„e  to  hi.  prineipal.  .„„,e,hing  to  their  adian 

c.  J.':':ea"ie;:  zzi^^^lhz":  1'"t  '-  °  '"""•'■  --"  •• 

tendanee.     A  good  junior  win  .1  ,^    {  "'^'"'  P"""^"'"'."  '"  't- 

-. .  cwer-^pCrvi:  "a  'rn,;:;;''nr„';  r*  'a":d""'"'"'" " 

'•It   Is  soDMtlmne   suppoaea    that    t,-.   u„   ^m,    . 
."Plow  muat  not  b.  tr«™puloo.-  ™1?  ,     i    .".""  ""^*  ■""•—'•'">•.   ar 
U.™.    But  ,„.,.  .par,  fr«  tta"mmi,Sft,'o^^.Mf  ""  T'""*  ""  ""  ""  ■*"»' 


BANKING   AND    COMMERCE. 


It  may  not  be  pouible  in  a  large  establishment  for  every  salesman  to 
ascertain  what  is  the  net  cost  of  the  goods  he  is  handling,  and  to  a  ma- 
jority of  those  engaged  in  selling,  a  principal  would  scarcely  think  it  pru- 
dent to  give  such  information.  But  as  a  salesman  grows  in  experience 
he  will  be  «ure  to  exercise  himself  in  this  direction.  And  it  is  desirable 
he  should;  for  in  the  case  of  salesmen  and  travelers  of  experience,  they 
may  sometimes  be  allowed  discretion  in  the  selling  price  of  goods.  It 
would  obviously  be  of  advantage  to  a  salesman^  in  using  this  liberty,  to 
know  what  things  cost,  so  as  to  ensure  that  no  mistake  was  made  in  re- 
ducing the  price  unreasonably. 

A  successful  salesman  or  traveler  will  exercise  a  good  deal  of  tact  in 
dealing  with  the  peculiarities  of  customers,  and  a  large  amount  of  pa- 
tience and  perseverance  also.  Experience  shows  that  a  stubborn  "no" 
may  be  changed  into  a  complacent  "yes"  by  quiet  and  intelligent  per- 
ttistence.  Above  all  things  he  will  be  civil;  ready  to  anticipate  a  cus- 
tomer's wishes,  ready  also  with  suggestions  as  to  what  would  V .  satisfac- 
tory in  case  the  party  does  not  see  the  article  he  wants.  But  it  is  a  mif- 
take  for  a  salesman  to  push  off  undesirable  goods  on  a  customer  by  brag 
and  volubility.  The  customer  who  has  been  overreached  in  t'  '9  way  will 
avoid  the  place  in  future. 

In  the  life  of  George  Moore,  of  the  great  house  of  Groucock  and  Co., 
of  London,  who  used  to  be  called  "The  Napoleon  of  the  Road"  because  of 
his  wonderful  quickness  and  energy,  there  is  an  excellent  story  of  his  suc- 
cess with  a  rrtail  storekeeper  who,  after  repeated  refusals  such  as  would 
have  damped  the  energy  of  most  men,  was  at  last  induced  to  make  a  pur- 
chase of  some  insignificant  article  and  thereby  open  an  account.  The 
door  once  opened,  the  young  traveler  took  care  it  should  be  kept  open; 
with  the  result  that  the  casual  buyer  became  a  valuable  customer  of  the 
house.  The  responsibility  of  a  traveler  is,  of  course,  much  more  than  that 
of  a  salesman  in  the  warehouse.  Pic  needs  much  more  tact,  more  knowl- 
edge of  human  nature,  more  patience,  more  perseverance.  And,  it  needs 
to  be  added,  he  will  need  to  be  more  watchful  of  his  own  conduct.  Living 
in  hotels,  he  will  be  in  the  way  of  temptation  that  does  not  meet  those 
whose  duties  are  at  home. 

far  as  this,  he  will  certainly  make  a  complaint.  If  he  has  been  deceived  by  an 
employee,  he  will  complain  to  the  principal,  and  the  employee  will  suffer.  If  h« 
has  been  deceived  by  the  principal  hlmaeir,  he  will  probably  be  more  outspoken. 
In  either  cuae  he  will  want   redreaa. 

It  was  said  of  the  late  A.  T.  Stewart,  whose  retail  store  used  to  be  one  of 
the  wonders  u(  New  York,  that  one  element  of  hla  success  was  this,  "He  always 
turned  the  rutten  aide  of  the  melon  up";  a  very  homely  phrase,  but  highly  ex> 
preselve,  as  Indicating  that.  \t  there  were  anything  defective  atwut  his  goods,  h« 
never  concealed  It.  It  thus  came  about  that  people  had  Implicit  confidence  in 
Stewart's  goods  and  consequently  (locked  to  his  store  to  buy  them.  There  arc 
manufacturing  firms  In  England  that  have  built  up  a  reputation  by  the  Invariable 
rule  of  never  stamping  their  name  on  an  Inferior  antcle.  They  have  found  tha 
advantage  of  this  In  the  fact  that  the  name  came  to  have  a  dlatlnct  mercantll* 
vatue:  auch,  for  example,  as  that  of  Rodgera  of  Bhaffletd,  for  fine  cutlery. 


THE    SUCCESSFUL    MERCHANT.  gi 

iMtOCTANCE    OF    CaREFUT.    BuVINO. 

Pursuing  the  future  sueeessful  mcrehant  through  his  eourso  of  prep«- 
ratioi,,  .„d  supposing  him  to  h«vc  achieved  success  as  a  salesman  and  a 
traveler  the  next  question  will  be,  whether  he  can  be  trusted  with  the 
responsible  function  of  buying. 

It  ■■•  •  iMiim  of  trade  that  "goorf,  «,tll  bo„gU  arc  half  toU."  Though 
the  most  difficult  function,  of  a  buyer  are  exercised  in  lines  of  business 
where  taste  and  fashion  come  into  play,  yet  his  sliill,  if  he  has  it,  will 
«nd  ample  ,™pe  even  in  dealing  with  raw  materials  and  groat  staples. 
Judgment  and  special  knowledge  are  required  even  to  buy  grain,  cheese, 
timber  or  iron  to  advantage. 

Passing,  however,  by  these  for  the  present,  let  us  look  at  the  charac- 
teristics of  a  successful  buyer  of  dry  goods  and  fanev  goods.  Here  an 
cssenUal  difference  must  be  noted.  While  the  buyer  of'grain  or  anv  other 
like  commodity  may  make  mistakes,  it  is  certain  that  the  goods  he  bnvi 
can  be  sold  at  .o».e  price.  But  the  buyer  of  dry  goods  can  never  be  sure 
that  what  he  buys  (unless  it  be  simple  staples)  can  ever  be  sold  at  all. 
Ihe  buyer  then  will  naturally  be  one  who  has  had  experience  as  a  sales- 
man or  traveler,  and  has  learned  by  experienec  what  the  taste  and  fancy 
of  customers  are  likely  to  be  when  new  goods  arc  offered  them.  Ther'e 
is  a  difference  in  this  respect,  between  the  customers  of  one  house  and 
another,  between  the  people  of  one  city  and  another,  and  between  one 
period  and  another.  A  class  of  goods  can  be  safely  imported  bv  a  mer- 
chant in  New  York  that  it  would  be  unwise  to  bring  into  a  smaller  city. 
As  to  the  differei.cc  between  one  time  and  another  it  is  a  fact  that  in  the 
inflation  that  prevailed  in  the  early  days  of  Manitoba,  there  were  goods 
to  be  found  In  the  Hudson  Bay  Company's  store  at  Winnipeg  of  so  cosUy 
a  character  that  no  merchant  in  Montreal  and  scarcely  even  in  New  York 
would  have  dared  to  impart  them.  Such  goods  could  be  sold  in  Winnipeg 
at  that  time.  Two  years  afterwards  a  heavy  reaction  set  in,  and  no  such 
articles  have  been  seen  there  sineo.=° 

The  buyer  then  will  consider  the  customers  of  the  house,  as  to  their 
taste  and  capacity,  as  well  as  the  time.  An  intelligent  buyer  after  some 
eiperience  develops  a  sort  of  Intuitive  apprehension  of  goods.     He  could 

Wlnnl^;;""'.,""^  1.""'"°°    '    """■    '°°'""'  ""'°*  """"  «  crockfry  .lore   In 

cnaraclcr.  The  man,  however,  said  .t  once,  "That  wont  do.-  other  sets  were 
then  Shown  him  of  .  better  khd.  but  none  of  them  suited  him.     The,-" er.^ot 

oTof  .X.   ,     """  "'"  "'"■   ■'■"  "''  '  ""  """'  "<  """■■  ^''"mm 

^methln,  !^^  """*:"■■  """  '  *■""'  ""  "™  ""^  "'"■  ■°">"l'ln«  really  tlp-.op; 
^Mv^miV.J.,'',"''  ""■  ■""  ••"""•"P"-  then  bronshl  out  a  ,et  h.  had 
^^  f^  f  ""  """""'•  "  "">  «~ee.«  rlrtl,  order;  a  ,ct  ot  .ueh  rarity 
L«  ^rZ  wt,  *  '.°""'/»"  •^"O  "">  '■".'«  «'  ".  B:n,U.h  nobleman  Tb.  man 
!t™J^u?    ^      ?"■     ""''  "  "•  '^""''^  •"<'  ■»"  '"'  on  "le  spot.     The  merchant 

".r.v:"m  "h^a'ariyr*'  °'  •°°'- "  ■ '"""  •""  ■»•"'  •"--  •■>-•■ 


r 


Si 


BANKING    AND    COMMERCE. 


not  explain  it  if  he  tried,  but  it  exists,  and  it  will  lead  him  to  say  of  some 
new  patterns,  "Our  honse  could  never  sell  them/'  and  of  others,  "These 
will  suit  us  exactly."  Judging  thus  intnltirely  he  judges  promptly;  and 
in  a  majority  of  cases  he  will  be  ri^t 

A  buyer's  judgment,  however,  is  not  only  exercised  as  to  what  goods 
to  buy,  but  how  much.  This,  sometimes,  is  a  more  difficult  matter  to  de- 
termine than  the  other,  for  if  he  buys  too  much,  even  of  an  article  that 
takes  the  fancy  of  customers,  the  extra  quantity  will  be  carried  past  the 
time  when  the  fancy  of  customers  favors  it.  On  the  other  hand,  if  he 
buys  too  little,  a  feeling  of  vexation  is  generated  in  the  warehouse  at  op- 
portunities of  profit  being  missed.  The  latter  error,  however,  is  the  safer 
of  the  two.  If  the  goods  are  evidently  going  off  well  a  repeat  order  can 
be  cabled. 

Buying  too  much  is  a  foible  of  some  otherwise  capable  men,  and  some- 
times a  cause  even  of  financial  embarrassment.  The  amount  to  be  bought 
is  a  matter  for  the  principal  to  judge  of.  He  will  look  over  his  stock, 
consider  his  average  sales,  and  give  his  buyer  instructions  accordingly. 
But  cases  may  arise  in  which  an  experienced  buyer  may  take  the  risk  of 
varying  from  instructions.  He  may  learn  things  about  the  market  when 
abroad  that  make  it  desirable  rather  to  hold  off  than  to  buy.  Or,  what 
he  learns  may  lead  him  to  buy  more  heavily  than  was  arranged.  This, 
however,  he  will  do  at  his  own  peril.  A  young  buyer  entering  this  difficult 
field  will  do  well  to  err  on  the  side  of  caution  rather  than  otherwise.  Bet- 
ter for  him  to  cable  for  instructions  and  pay  the  cost  himself,  than  to 
moke  such  large  purohases  as,  to  the  writer's  knowledge,  have  not  only 
caused  loss  to  his  principals,  but  deranged  the  whole  market. 

There  are  fields  of  mercantile  enterprise  in  which  the  functions  both 
of  buyer  and  seller  would  api>ear  to  be  for  more  eosy  than  the  foregoing, 
■eeing  that  prices  are  quoted  day  by  day,  and  that  all  a  man  has  to  do, 
apparently,  is  to  follow  the  market.  A  plausible  theory,  but  utterly  fal- 
lacious. For  in  all  staple  articles,  such  as  grain,  cheese,  wool  or  timber, 
there  is  a  remarkable  range  of  qnalittf.  The  grades,  certainly,  are  indi- 
cated by  market  quotations.  But  even  in  such  apparently  simple  mat- 
ters as  grain  and  flour,  there  are  shades  of  difference  thitt  none  but  ex- 
perts can  appreciate. 

Yet  it  is  often  in  a  correct  appreciation  of  these  that  the  profit  or  loss 
of  a  given  line  of  operations  consists.  The  same  remark  applies  to  im- 
ported articles  in  other  trades,  such  as  groceries,  fruit,  wines,  raw  sugar ; 
not  to  speak  of  hardware,  iron  and  steel,  in  all  of  which  there  is  room  for 
the  finest  exercise  of  j  udgment  on  the  part  of  the  buyer  as  to  the  quality 
of  goods.  It  may  indeed  be  laid  down  as  an  absolute  rule  with  regard  to 
every  variety  of  staple  goods,  that  none  but  a  man  of  experience  can  safe- 
ly venture  on  the  operation  of  buying.  If  he  does,  he  will  infallibly  "bum 
bis  flngns,"  and  if  he  continnei.  he  will  rain  himself. 


i.-- -  THE   SUCCESSFUL   MERCHANT.  „ 

Till  Otfici. 

«  promot  in  nnvm^-nf  „-  „*i.  .  '""■'*'"'"■  "i  ine  hna  are;  wheth- 


M 


BANKING    AND    COMMERCE. 


But  this  is  not  all  that  !•  neceuary  to  success. 

There  have  been  men  who  could  sell  and  buy  goods,  and  know  how  to 
keep  accounts,  too,  who  have  entirclv  failed  in  the  attempt  to  carry  on 
business  for  themselves. 

It  was  said  that  at  one  time  a  considerable  number  of  the  salesmen  in 
the  employ  of  Mr.  A.  T.  Stewart,  of  New  York  (who  has  been  already  re- 
ferred to)  were  men  who  had  failed  in  business.  They  were  expert  lalef 
men ;  and  perhaps  some  of  them  expert  buyers,  but  were  deficient  in  other 
qualities  essential  to  success.  They  could  sen'e  an  employer  and  be  de- 
pended upon  to  follow  instructions.  But  experience  had  pro.-ed  that  they 
could  not  succeed  when  they  had  no  guidance  but  their  own  judgment. 

What,  then,  are  the  other  and  final  conditions  of  business  success, 
permanent  success,  let  us  say,  in  addition  to  the  technical  knowledge 
and  skill  before  referred  to?  The  consideration  of  these  is  of  sufficient 
importance  to  form  the  subject  of  further  treatment. 


CHAPTER  IX. 

THB  BVOOESaniL  KKROHAMT-OpntliiB«d. 

Cmx  AND  Cap.ia,^B™n.m  Locaiion-Eotndino  C«dit-Eco»- 

CODK,-ADT»T..,.Va-P,.„ONAt     D»AW,Na— P.0O»l„„.N«.     AMD 
COU.TMT— CarEPIII.  ACCOONTINO. 

pEBSONS  of  little  experience  in  the  world  m,y  think  it  Urange  that 

.Lr^  7  T  "1"  ""''  "P""^  ■""■'  ^'^  "'h   "  ''« 

P,„  •  K  ("""i'ng  P«p€r  should  not  .ueceed  in  bu.ineM. 

ft^  wh.?.     "Tk""""  ""'  "■'''  ^°  '°  '•"■    B"'  "•"  «  -y  ""d- 

lH»ine„  in  fhi.  tre.t,.e  i.  considered  in  reUtion  to  bonking.     FoUowin, 

g.gen,enls;  to  perform  every  obligotion  he  h..  entered  upon,  .„d  to  eC 
h,.  bosine..  creer  without  being  in  debt  to  .ny  n,.n.    HV^y  .nd  ou^ 

prim.^  eond.t.on,  thi.  must  be  I«,ked  on  with  no  litUe  «ti.f«:tion     But 

■Lm  l^n  "T"  "  '■'  *"  ""'"^  "°  '""''"  """  **".  *«  -"""tile 
world  wdl  generally  pronounce  it  to  be  in«ie,u.te.    Every  man  o.  ent«! 

weU  hare  remained  an  employee.  What  he  generaUy  «ipire,  after  i.  " 
leaat,  a  competeney-a  aufficiency  over  and  above  hi.  liabUitie.  to  .up^n 
him  when  old  age  has  deprived  him  of  hia  power..  "^ 

Creoit  and  Capital. 

No  man  could  condu      hi.  bu.ine«  with  comfort  if  he  were  alway. 

kL?  ^rr  "i"^.  '"  ""^^  '^^"  °f  *■"'  ™W»  •*«'",  being 
barely  able  to  pay  h.,  debt,  nnd  nothtag  more.    A  eaptata  may  at  time. 

would  undoubtedly  lo«  hi.  .hip.  There  n.u.t  be  a  ™argi,  if  there  i.  to 
be  aiiy  .at..f.clion  in  bu.taes.i  and  thi.  margin  in  the  ca«  of  a  merchant 
i.  hi.  Capitol  Of  Ih..  a  few  word,  require  to  be  .aid.  And  the  fir.t 
thing  i.  that  the  capital,  .o  called,  mu>t  be  a  man',  own.  There  i.  hardly  a 
more  dangerou.  delusion  than  for  a  merchant  to  tolk  of  "borrowed 
capital,"  and  no  more  dangerous  practice  than  to  enter  m  hi.  balance 
sheet  as  "capital"  money  that  does  not  belong  to  him.  Borrowed  money 
Is  not  "capitol,"  it  is  a  liability.  No  matter  though  the  loan  has  been 
uranged  for  a  long  term,  though  there  may  be  an  apparent  certointy 
of  the  loan  being  renewed  when  due.  or  what  is  more  dangerous,  that 


M 


BANKING    AND    COMMERCE. 


II* 


no  period  of  payment  has  been  fixed  at  all — money  borrowed,  no  matter 
from  whom  or  under  what  circumstances,  is  not  "capital." 

Traders  sometimes  think  it  does  no  harm  to  reckon  as  capital  an 
amoont  of  money  which  is  certain  to  remain  in  the  business  for  a  con- 
siderable period.  But  it  does  this  harm,  that  a  merchant,  if  he  so 
considers  it,  will  incur  risks,  bay  goods,  and  give  credit  to  a  larger 
Linount  than  he  would  do,  if  he  rigidly  thought  of  this  supposed  capital 
as  a  debt  of  which  payment  would  some  day  be  demanded.'* 

Capital,  then,  is  what  a  merchant  owna  himself,  on  which  no  other 
person  has  a  claim,  the  surplus  over  all  liabilitieM,  no  matter  to  whom. 

To  ensure  success  in  business,  capital  must  be  sufficient ;  an  elementary 
truth,  indeed,  but  capable  of  a  great  variety  of  applications.  For 
example,  it  may  be  taken  as  a  well  established  truth,  that  other  things 
being  equal,  the  larger  the  business  the  larger  the  capital  needed.  But 
the  proviso,  other  things  being  equal,  must  be  carefully  noted.  The 
slower  the  course  of  the  business,  the  more  the  capital  required  to  conduct 
it.  The  country  store  doing  business  where  payments  are  only  made 
once  a  year,  requires  more  capital  than  a  town  store  that  sells  a  good 
deal  for  cash,  and  gives  no  credit  for  longer  than  a  month.  And  the 
cash  store,  that  gives  mi  credit  to  anybody,  requires  pari  patiu  least  of 
all.  The  business  of  a  saw  miller  or  the  maker  of  timber  is  one  that 
calls  for  an  unusually  large  capital  in  proportion  to  the  annual  production ; 
for  expcnditu-  es  go  on  continuously  for  a  whole  year  before  tlic  article 
is  ready  for  market.  At  the  other  end  of  the  scale,  we  find  a  grain 
merchant  where  the  article  is  bought  and  sold  on  the  spoi  foi  cash.  This 
consideration,  of  course,  determines  the  percentage  of  profit  called  for. 

It  is  argued  by  some  theorists  that  credit  answers  ev>,.y  purpose  of 
capital.  It  answers  some  purposes  of  capital,  for  a  time,  beyond  doubt. 
But  such  theorists  are  apt  to  forget  that  cretlit  muit  always  be  paid  for, 
no  matter  in  what  shape  it  is  taken,  whether  in  goods  or  in  money.  And 
Mpeiience  sliowi  that  what  is  paid  for  credit  in  the  shape  of  interest 
sometimes  absorbs  all  that  remains  of  profit,  after  expenses  and  losses 
have  been  provided  for.  Young  men,  for  t-xample,  who  hnj  out  the 
assets  of  an  established  firm,  paying  a  small  amount  down  and  giving 
notes  for  the  balance,  may  find  that  interest  absorbs  their  profit  year  by 
year,  and  renders  progress  impossible.  The  same  thing  is  likely  to 
happen  when  a  young  man  is  set  up  in  business  by  a  wholesale  house, 
he  ha\'ing  nothing  wortli  the  name  in  the  shape  of  capital.  The  house 
fells  him  a  stock  of  goods,  and  keeps  him  supplied  with  what  he  needs. 
He  is  compelled  to  buy  from  them,  for  if  he  buys  elsewhere,  they  can 
bring  his  business  to  a  .^^tand.  Under  these  circumstances,  he  invariably 
pays  a  high  price  for  everi-thing  he  orders,  which  high  price  renlly  rep- 

31  A  very  common  form  of  the  d«lualon  spokpii  nf  is  apt  to  arise  wh«n  a  part- 
nerahlp  Is  dlMolved,  and  the  retlrlns  partner  leavM  his  money  to  those  who 
rpir.aln.  Thf  r'.-nainlnjr  partnprp  are  rhpn  --mrtor  ---.nptan'  temptation  fy  ■wnsWef 
the  capital  of  the  houie  to  be  as  much  as  l>eforc.  and  to  carry  on  business  accord- 
Incly.    From  this  delusion  they  sometimes  receive  a  rude  awahenlnc 


THE   SCCCESSFUI,  MERCHANT. 


.bHuk  tn  blth  "•.■"-'f^-'""..  together  wit,.  eon,p.™„.„  f„ 

ehlin  7  w  •"PP'>""«  '«'"«■  If  «  "■■"  detern.ine.7o  b,e»k  the 
ch.in  .nd  ge'  free  bending  hi.  energie.  ,„  effeet  it  by  .  .te.dy  c.n,« 
of  ee.„„„y  .nJ  ind„.try.  he  n..y  p«„ibly  make  progre...  .nd  in,,™ 
T""!  '""'^'"•'y-  B"'  >f  "ot.  he  will  .ln^,t  eertlinW  "il  on 
hro.gh  l.fe,  .nd  be  a.  poor  at  the  end  ».  he  w..  at  the  beginnLg      But 

;:g%3"r/hrru''!;:' "--  "^  — -  -  -  -  -V"- 

b„.ines.  ..  n,oder.,ely  bri,k,  ..„„t  „„e-fif,h  „r  .U.h  of  hi.  anZ  tZ; 
Of  .nv  kind  .hould  h.ve  at  le..l  .»  „„ch  capit.1  „  hi.  f.etorv  or  miK 
rle  f  Th  "■'  r'7  T"  °'  """^'"""''  '-.ve  e„,t  together  Uh  Tie 
or  timbered  land.  mu.t  be  added.  .\  merchant  in  .grieultur.1  prwlncU 
dnnng  the  .e..on  of  n.vigation,  n,„y  do  ,  large  bu.ine..  on  a' slS 
eap.t.l  than  a  merehanl  in  any  oth.r  line  of  bu.ine,.:  f„,  the  movement 
.,  JO  ,„,ek^  a.  he  may  he  able  repeatedly  ,o  turn  over  hi.  whole  Z^t 

im^J:J:.t',^r'-  "^  ■""■'  -"  °"  '-^ ""-'-"  •"  -'-'"^ 

But.  when  navigation  i.  closed  in  river  and  c«..l,  a  produce  merchant 

Zldlhlf  \""'  ""  ""r  """"""'^  ■""•'  his  prSt  atT  H 
^•.ould    herefo  e  have  a,  much  capital,  .1  ka.t,  a.  will  enable  him  to 

"f  tad°c  °    ■'  ""'^"'"°'"  "f  "-^  ""'■et,  but  unfavorable  eond^o™ 

Paradoxical  a.  il  may  ,„„„d,  it  i,  undoubt.  dlv  true  that,  on  enterinir 
urK.n  bu..ne,.  it  i,  not  desirable  for  a  firm  ,„  hav'e  too  much  cap.m  "f 
hey  have,  they  w.II  be  apt  ,„  indulge  in  an  e..y-g„ing  style  of^onducl- 
.ng  b„,.„e„  crediting  too  much,  not  collecting  .ha^ly,  carrying  too 
fTu!;e'::Llir  -"  "'  '"•^"'  -^  --  ".vThrf„un/a.ifn':? 
If  a  father  i,  setting  up  his  son  in  business,  the  wisest  course  to 

hi  T  "  ^.f ".  ""'''  ""  ""^""^  °'  "-"P""'  °"'>-  «»  "ill  "eccilale 
h.s  being  both  mdustriou.  and  careful.  Better  he  .hould  learn  (he  value 
of  money  by  being  occasionally  short  of  it.  Better  he  should  learn  lo 
be  economical  in  personal  and  businc,  expenses  by  it,  being  rendered 
.mpo,.,ble  for  him  lo  be  olherwi.e.  The  law  of  neccily  is  a  wl,„le«,me 
one,  though  many  a  man  has  fretted  by  reason  of  it.  pressure.  Experi- 
ence, in  the  majority  of  ca«-,  and  in  due  time,  will  convince  him  that  rt  i, 
Ealutary. 

V.U.UI  OP  A  Goon  BusiXEs.  Location. 
An  important  element  of  success  in  mercantile  busine,.  i,  a  good 
•land  in  a  prop,,  locality!  and.  in  the  case  of  .uch  a  buiineu  a.  dry- 
good.,  a  well  arranged,  well  lighted,  and  convenient  warehooM  or  rtore 


BANKING    AND    COMMERCE. 


But,  eveii  in  the  Mine  locality  and  in  the  sune  street  there  arc 
differencei  in  the  eligibility  of  a  stand.  The  chance  of  obtalainf  a  eholee 
corner  haa  not  leldom  been  the  making  of  a  boilneM.  On  the  other  hand, 
the  energy  and  ikill  of  an  able  man  may  be  nentraliied  by  a  badly 
lighted  itore,  or  one  placed  on  the  wrong  tide  of  the  itreet. 

With  regard  to  the  building  in  which  he  ii  to  carry  on  busineai,  a 
young  merchant  will  beware  of  entering  upon  a  warehouie  too  large  for 
hii  meani.  If  he  makei  thff  mistake,  he  is  in  danger  of  either  attempting 
too  large  a  style  of  buslnest  for  his  capital,  and  being  continually  ham- 
pered for  money,  or  of  paying  out  too  much  of  his  profits  for  rent  and 
taxes. 

The  Extinsioh  or  Cninir. 

But  now,  on  the  supposition  that  a  merchant  who  knows  his  bnsinets. 
has  secured  a  warehouse  in  a  good  position,  that  he  has  a  proper  amount 
of  capital,  that  with  the  judgment  of  a  good  buyer  he  has  laid  in  a 
seasonable  stock  of  goods,  he  will  immediately  be  confronted  with  the 
difficult  question  of  giving  credit  In  all  lines  of  wholesale  business,  this 
may  be  said  to  be  the  question  of  questions.  It  is  eren  so  to  some 
extent  with  a  retailer,  especially  in  a  country  store. 

The  giving  of  credit  In  a  country  where  the  average  of  failures  is 
so  high  at  times  as  it  is  in  Canada  is  so  difficult  a  function  to  exercise, 
that,  in  a  large  establishment,  it  is  well  for  one  partner  to  devote  his 
whole  attention  to  It. 

In  this  matter,  a  few  general  rules  and  principles  may  be  indicated 
as  the  result  of  experience,  some  of  which  are  applicable  to  the  whole- 
sale merchant  and  some  to  the  retail  storekeeper.  It  may  be  said,  also, 
by  the  way,  that  most  of  them  apply  to  a  Banker  also. 

With  regard  to  the  former,  the  importance  of  correct  information 
cannot  be  too  much  emphasised.  Get  information,  and  be  alwayt  on  the 
lookout  for  more;  that  should  be  the  rule.  Day  by  day,  it  should  be  the 
merchant's  business  to  keep  his  information  up  to  date.  The  things 
be  knew  about  his  customer  a  year  ago  may  utterly  mislead  him  now. 
Solvent  a  year  ago  and  doing  well,  a  man  may  now  be  losing  ground 
and  even  unable  to  pay  his  debts.  But  while  the  present  condition  is 
important,  the  past  has  also  to  be  considered.  A  man's  antecedents  are 
an  important  element  in  considering  whether  he  Is  deserving  of  con* 
tinued  credit  or  not  Information  requires  sifting,  for  there  are  false 
reports  as  well  as  true.  The  working  of  a  customer's  account  will  tell 
him  much.  Conversation  with  the  customer  himself  will  elicit  what  could 
not  otherwise  be  learned.  The  traveler  who  waits  upon  him  will  bring 
Information  also." 

It  is  always  desirable  for  a  mercantile  house  to  have  a  maximum 
turn  beyond  which  they  will  trust  nobody.  This  maximum  will  be  care- 
fully considered  in  relation  to  the  capital  of  the  house  itself,  and  so 

ti  An  this  win  b*  mon  fully  coRai<I*r«d  further  on. 


THE    SUCCESSFUL    MERCHANT.  sg 

/cgulated  that  the  failure  of  no  «»c  or  six  penoiu  could  bring  the  Ami 
Into  cmbarraisment.  Bill  tlie  bulli  of  the  account!  carried  by  a  firm  will 
be  far  amallcr  than  thi>.  That  good  old  trade  maxim,  "DiTide  your 
rlikl,"  can  niier  lafely  be  forgotten.  A  tendeiicT  to  be  watched  ii'  for 
the  large  euatomen  of  a  «rm  to  drift  into  a  habit  of  leaning  upon  the 
liunac.  Such  account!  hiive  a  general  tendency  to  go  on  increaiing,  and 
their  very  aiae  makea  it  difficult  to  throw  them  olT.  It  ii  alwayi  known  in 
the  trade  that  luch  and  lueh  cuitomera  are  "inpply  houaci"  of  thii  (inr. 
or  that,  and  the  fact  of  IIk  pnrtiea  deairing  'o  open  an  account  elae- 
where  raiiea  a  lutpicion  tlinl  tlie  aupporting  Arm  desirei  to  get  rid  of 
Ihem.  Hence  they  cannot  be  got  rid  of  at  all;  the  only  alternative  being, 
either  to  bring  them  to  a  stop  and  face  a  loai,  or  carry  them  on  with  a 
conatant  endeavor  at  reduction,  which  ii  generally  futile. 

In  the  ordinary  run  of  aecounia  the  amount  of  credit  will  vary  with 
the  means  and  standing  of  the  customer,  a  theory  which  is  unquestionably 
true,  but  which  requires  n  firm  hand  and  watchful  oversight  to  carry 
out.  For  some  customers,  »hen  kept  strictly  within  bounds  by  one  house, 
will  endeavor  to  run  up  an  account  with  another.  A  dangerous  amount 
of  credit  may  arise  when  dealings  are  with  a  number  of  houses;  each  one 
imagining  its  own  line  to  be  judicious,  while  the  whole,  collectively,  are 
unreasonable  in  a  high  degree.  The  remedy  u  to  keep  well  informed, 
and  to  require  periodical  statements  from  customers,  in  addition  to  which 
the  partner  at  the  head  of  the  credit  department  will  And  it  useful  to 
have  statements  rendered  him  by  his  clerks  in  compamlive  form,  showing 
the  progress  of  accounts  from  month  to  month,  or  year  to  year,  indicating 
the  amount  of  a  customer's  purchases  during  these  comparative  periods. 
From  this  it  could  readily  be  seen  whether  the  account  was  sufficiently 
active  for  the  indebtedness. 

The  head  of  the  credit  department  of  a  house  will  also  do  well  to 
note  any  hints  he  may  receive  from  his  banker.  The  banker  often  knows 
what  the  merchant  does  not.  He  deals  with  other  houses  in  the  same 
trade,  and  has  branches  in  other  cities.  He  may  therefore  be  able  to  say 
to  a  wholesale  merchant:  "You  are  aware,  I  suppose,  that  such  a 
customer  of  yours  is  running  an  account  with  a  house  in  another  city?" 
The  banker  need  not  violate  confidence  by  going  into  details.  "A  word 
to  the  wise  is  sufficient."  But  if  a  hint  is  not  sufficient,  a  banker  may 
sometimes  render  an  essential  service  by  throwing  out  the  paper  of  that 
customer. 

The  real  test  as  to  whether  a  merchant  is  crediting  judiciously  is  the 
average  prrcenlage  of  hit  lottet  to  hit  talet.  Some  percentage  every 
merchant  may  expect.  But  in  ordinary  times  this  percentage  should  be 
so  moderate  as  to  make  no  serious  impairment  of  profits.  Even  in  times 
of  depression,  when  insolvencies  are  double  or  treble  the  average,  the 
losaes  ought  never  to  be  so  much  as  to  impair  the  stability  of  the  house, 
though  they  make  serious  inroads  into  its  profits. 

The    foregoing   observations    have   reference   wholly   to   dealers    in 


•»  BANKING   AND  COMMERCE. 

iiuportcd  nr  manufactUKd  good>.  Thr  dealing  in  riporti,  however,  ll 
gonrned  by  othrr  ronildnatlnnl.  It  may  W  laid  down  aa  a  grncral  ^e 
that  the  eiportn  of  Canadian  prodneta.  partly  from  the  nature  of  the 
prodneta  themaelvri,  and  partly  from  other  rirrumatanrri.  ahoutd  nauaUy 
give  no  credit  at  all.  For  how  ran  he  keep  hlniielf  informed  of  the 
changing  poaition  of  DHrchanti  In  a  foreign  country?  A  partner  may 
die  or  retire,  yet  the  conwrvntive  hahili  of  RnglUh' houiei  will  lead  to 
the  »■•«  heinf  retained,  while  the  capital  may  have  heen  withdrawn. 
Even  the  ratlnga  of  Am»  In  reference  hooka  m.v  be  kept  ai  before, 
olthough  a  vital  change  ha«  taken  place  in  their  compo>ltlon  and  caplul. 
The  true  poaition  for  the  Canadian  exporter  to  take  ii,  that  If  the 
buyer  abroad  wanta  credit,  he  ahonld  get  It  in  hia  own  country;  an  Idea 
which  ia  undoubtedly  reaaonable.  and  has  led  to  the  habit,  now  general  In 
many  line,  of  export  trade,  of  attaching  billi  of  lading  to  billi  of 
eichange,  and  requiring  thr  bill  to  be  paid  before  the  lecurity  is  given 
up.    All  this  will  be  fully  considered  later." 

With  regard  to  the  credit  giv.n  by  retailers,  a  distinction  must  be 
made  between  those  in  the  city  and  the  country. 

The  accounts  of  respectable  families  in  cities  are  seldom  a  source  of 
loss,  though  some  householders  do  occasionally  run  up  tradesmen's  accounts 
to  an  unreasonable  extent.  Such  accounts,  however,  seldom  give  rise  to 
discountable  hills;  and  if  such  are  presented  to  a  banker  he  will  generally 
do  well  to  decline  them. 

But  the  credit  given  by  country  storekeepers  to  farmers  rests  on 
dilTercnt  grounds.  The  farmer  has  property  which  ce.i  be  seen,  both  real 
and  personal,  and  though  often  slow,  is  generally  sure.  The  danger  with 
farmers'  accounts  is  not  so  much  of  ultimate  loss,  as  of  their  degeneraUng 
into  what  bankers  call  "lockups."  A  storekeeper  with  Us  books  full  of 
such  accounts  is  apt  to  become  as  slow  as  the  farmer  himself.  His 
Interest  account  therefore  becomes  heavy  and  tends  to  eat  up  his  profits. 
He  Is  made  also  to  feel  in  times  of  pressure  that  his  account  is  unde- 
sirable. In  dealing  with  farmers,  storekeepers  need  to  be  careful  to 
consider  whether  their  customer  is  owner  or  tenant;  and  if  owner, 
whether  his  land  ia  free  of  encumbrance  or  not.  The  utmost  limit  of 
credit  to  a  farmer  should  be  the  amount  of  one  scaaon's  supplies.  When 
an  account  gets  beyond  this,  it  should  be  stopped.  No  consideration  of 
e.nse  in  getting  bank  discount  should  pre  .ail  to  alter  this  rule. 

.1-,,!.',"  J-  '".  **  T":  ^'""^'■''  "■•'  ">»  '"»'•"  1"  "r«at  Brilain  wllh  whom  our 
mm,  ^^rrVJtlf.  'Z'L'"  ^'""Sf  l'""i»'>>'y  "•  »  hlah  cl«.s.  both  In  «e.ltli  and 
Jlfi^.  .  I,.  "'  "undlna  ana  unblemished  antecedents,   nho  haie  never 

P,^L,f  l"„°'T  """'"i'";  '"  ""  "•">  »'  tltne..  r.t  It  I.  .Inaular  how  cntlon.ly 
fta?  ?h.,.^i'''''."E!w  "'"■"  ".'"f  •"  """"'""  "'  •"•»  "«"•  eircum.tano™  prove 
1  hl.1,  ,IL„1  ?^  'k  "",-  *  """^  merchant  In  Eniland  who  h.d  maintained 
™™r.."1iuu".,  ',"  '  '""5.  ™"'~  ■"  •""•  "«»»■•  emtnurassed  and  stopped 

Kjr.,i  in!^„5.5  iy_  "•,  "  ;>'  "t"""-  T"  Ilia  astonlahment  o(  th™  .11.  hi. 
ii,?,.  .J.,  k'';*'-  '.Vr"  '°"."''  "»'  ■'•  """  •"••K'l  in  reekle..  speculation  In  an 
article  that  had  nothlni  to  do  with  his  trade,  which  speculation  «^n:  wronr  ha* 
rauited  in  such  heavy  10..  ..  to  ,„in  him.  Thl.  .fCalr  was  tha  wcislon  of  cSn- 
sldcraW.  loss  to  Canadian  llrms  who  had  dealt  with  him  contlnuouSj.  for  yaanT 


THE   SUCCESSFUL   MERCHANT. 


61 


EroxoMv  IN  Bi'iivin  £zrixDiTt'ir>. 
Thli  I,  .nothw  coiwlition  of  .ucccm.  By  thi.  I.  not  mrant  mm 
a  7  <  .,  ''^-V°""t-  K™»'""J-  prlm.ril.r  mr.n.  m„a/,fmf,l.  .. 
Ih.  drriv..lon  of  l„  word  im|,li,.  to  h,gl„  ,1th,  c.rrful  clculallon  of 
wh.t  ch.r^,  ...n  b,  ,ff„rdrd  .carding  to  the  .!«■  of  the  bu.ine».  Tbt 
prlnwr,-  rh»rge  m  n  in.„v,ntilc  hunln.-..  i.  the  rent  of  the  warehowe  To 
rent  too  Urge  .  .lore  I.  „  .„.ri„„.  mUfke.    But  it  i.  poor  economy  to  rent 

^  I    ,         t°'   """'■""•    ""'"»  "'  ""■  ■""<•  »"'  •>'  f"  "><"«  th.n 
oflwt  by  loii  of  eiistomeri.** 

The  ularle.  of  clerk,,  Mle.nien  and  traveler,  i.  another  item  of 
even  nMr.  importance  ll,a„  the  other.  Here  again  it  i.  p«,r  economy  to 
employ  an  inferior  .la.,  of  men.  Such  are  apt  to  injure  the  bu.ine« 
by  inefficiency.  More  men.  too.  are  required  to  do  a  certain  amount  of 
bualne.,  when  l,.-v  ,«■  blow  a  proper  .tandard.  Three  competent  men 
will  do  a.  much  work  aa  four  of  an  Inferior  cl.»,  and  while  they  coat 
no  more  in  the  aggregate,  tllcy  help  to  build  up  the  buiiiie.»  by  wise 
attention  to  the  want,  of  ciutomer..  A  merchant  will  do  well  to  have 
young  men  about  him  who  are  undergoing  training  in  the  method,  of  the 
biiiineu.  Thi.  tend,  to  economy,  but  mu.t  not  be  carried  too  fai,  a.  no 
warehoiue  or  oHic.  can  1«  carried  on  well  when  there  are  too  many 
junior,  in  it.  ' 

Cicely  connected  with  tin,  matter  of  employee,  and  making  the 
moat  of  their  capacity,  i.  that  of  the  treatment  of  the  .eaior,.  Some  of 
Mice,  although  they  grow  In  year.,  and  can  be  more  and  more  tru.ted, 
do  not  develop  bu.ine,.  cnpncity.  Men  of  thi.  kind  have  their  value-  a. 
they  .ave  the  principnl  much  anxiety,  and  need  no  .upervUion.  They  can 
al«.  be  u.eful  in  the  training  of  junior..  They  gradually  therefore  grow 
up  to  the  poaition  of  old  ,enanl.  of  the  houae,  who  have  a  comfortable 
Mlary  and  are  contented  with  it,  on  whom  >«Iiance  can  be  placed  and 
who  never  a.pire  to  anything  beyond.  It  i.  alwav.  good  economy  to  treat 
.iich  lervant.  well. 

But  there  are  other,  who  develop  a  capacity  for  buiine...  Such  al 
theae  not  only  work,  but  think.  They  ,ugge.t  improvement,  and  economic 
They  calculate  how  much  things  co.t,  and  nimetime.  find  out  where  they 
can  be  bought  cheaper.  Such  employee,  a.  these  .hould  be  noted  and 
encouraged,  an  '  sometime,  taken  in  a.  partner.. 

It  i.  thu.  ti.al  the  traditions  of  a  house  are  preserved  from  generation 
to  generation,  the  firm  going  on  doing  service  to  the  community  and 

..It  n«Kl  »„rcely  be  pointed  out  that  th,  rent  of  a  .tore  I,  a  oharri  upon 
the  buslneu,  even  when  the  preml»,  are  owned  by  the  nnn.     And  In  an  .dlu.t- 

Z'^.  Ti""."-  "  •■'■'■■'■'""»•  ""'  ■'•'""'  »•  «»«■■.«■  ..  par.  ot  the  annl 
«pen»  ot  bualn.™  exactly  a.  ir  It  were  paid  to  an  o,„,|de  pe„o„.  wh.r,  th. 
biialnn.  belong  to  one  p,r«,n.  and  ha  own.  the  warehoua.  or  .tore,  he  I.  deludlna 
1ilm«ilf  a.  to  the  eapenee  of  the  bu.lne»i  If  he  omit,  to  Cham  It  with  rent,  and 
lie  la  of  courw  deceived  a.  to  the  peroentaie  of  Increaee  to  ch.r.e  on  hi.  (ooda 


••  BANKING   AND   COMMERCE. 

MraHng  wnlth  for  III  mrnibm,  nuiny  rxnmplri  of  which  m»f  be  Men 
on  both  liilri  the  Atlantic,  but  cipcclally  in  Or»t  Britain." 

Inivramck. 
Another  item  of  expenditure,  and  one  In  which  lerlaua  mlatakei  are 
made.  I.  that  of  ■•uaraa.e.  Thii  will  be  fully  treated  of  hereafter.  It 
may,  however,  be  noted  In  Ihia  connection  that  ininrance  il  aa  reaionablo 
a  charge  at  rent  and  taiei,  and  if  buiinen,  „  carried  on,  will  not  bear 
the  npenae  of  iniurance,  there  It  lomething  wrong  with  the  buiincH. 

Intsrbbt  AUD  DiaCOUNT. 
Another  item  of  cipenic  which,  in  soinc  caiei,  l>  the  moit  lerluut 
of  all,  ii  iaferrtf  anif  rfitcoaal.  Few  firnii  are  in  condition  lo  conduct 
their  bnilneu  without  bnnk  loans  or  diicounta  at  all.  But  there  ii  .1 
reaionable  uie  of  bank  credit,  and  an  imprudent  uie.  When  a  wholeiale 
merchant'i  line  of  diicounted  paper  areragei  more  than  one-fourth  of 
hit  annual  lalei,  it  ia  generally  a  ilgn  that  hii  credit  to  euitomera  la  too 
long,  or  that  he  doei  not  collect  sharply,  or  that  he  Is  too  easy  In  renew- 
ing. But  when,  in  addition  lo  discounted  paper,  he  borrows  directly  and 
regularly  from  his  banker,  he  has  reason  to  reiisc  the  whole  methods  of 
his  business.  Bank  credit  to  some  men  la  a  dangerous  luxury.  Such 
loani  may  Kne  a  useful  purpose,  provided  they  never  amount  to  more 
than  one-fifth  of  the  average  line  of  discounted  paper  and  tliat  they 
never  extend  beyond  one  or  two  months.  But  when  such  loans  arc 
required  constantly,  and  exceed  the  amount  above  named,  it  is,  as  a  rule, 
a  sure  sign  that  the  credit  department  of  the  house  la  loosely  managed, 
or  that  It  Is  carrying  too  much  stock. 

When  times  of  difliculty  set  In,  and  the  general  average  of  failures 
rises,  the  pressure  will  show  itself  in  a  tendency  to  require  more  of  this 
kind  of  bank  credit.  But  this  state  of  things  is  best  met,  not  by  taking 
more  credit,  but  by  curUlling  the  business.  As  to  the  interest  account 
of  a  merchant  in  agricultural  products,  It  will  not  amount  to  more  than 
one-third  or  one-half  of  one  per  cent,  on  the  total  sales,  if  the  buslncsa 
it  aa  active  aa  an  exporter's  should  be.  But  should  such  products  be  held 
month  after  month,  in  our  long  winters,  Interest  and  charges  will  almost 
certainly  swallow  up  the  profit,  even  of  an  ordinary  rising  market. 

"  A  mlstalie  has  sometimes  bpen  made  by  the  tipnd  of  a  oommerclal  tioune 
who  hns  one  or  more  sons  arowlnc  up.  whom  he  naturally  dealrea  to  auocoed  him 
in  bualnem.  While  they  are  trowing  up  one  or  more  of  his  employees  are  devel- 
oplni  a  rapacity  for  manaiemrnt:  yet  he  hesitates  to  uke  them  Into  partnership, 
fsarlnt  they  may  diaplaee  memhera  of  his  own  family.  The  result  often  Is.  that 
these  employees  leave  the  houae.  enter  Into  bnilnen  for  themselves,  and  lie- 
eome  a.rlou.  rlvala.  If  the  sons  prove  10  have  manaalng  capacity,  the  arm  mar 
not  ultimately  be  damaied.  But  If  not.  the  chances  are  that  a  buslneaa  founded 
and  malnulnrd  by  the  father  may  disappear  under  the  Incapacity  of  the  sons. 
It  Is.  therefore,  wise  to  keep  manallnc  capacity  In  the  Arm.  even  If,  under  sucb 
a  realms,  sons  have  to  become  illlle  more  than  sleeplni  partners.  The  prevalllni 
tendency  to  convert  firms  Into  Joint-stock  i^mpiinlci  altonjs,  however,  an  easy 
mstbod  of  deallnt  with  this  stale  of  thlnfs. 


THE   SUCCESSFUL   MEBCHAXT.  1$ 

Adtertiiixo. 
Thtn  m  olhrr  itrini  of  npriiir,  «ich  ■•  tdterlisi,,,  which  fvfrr 
n.rch.nl  m,M  think  out  for  blin«-lf,  for  no  grn«.l  „.!«  wn  br  laid 

r."'7!:  ',yT """' """  «'«'♦'""»  ■'""'''  >»•  '■•  •  p«r-r  nmiiun.,  th.t 

It  .hould  b,.  nrr»ng,J  .o  ,.  to  attnrl  .ttrntlon,  .nd  that  it  .houM  b« 

T."i..  """  '°  ""^  ^  "•  ""'  '"  '*"™*  monotonout.    In  the  n/ilurt 

of  thing,  .omc  kind,  of  bn.in...  depend  mon  on  .dvertLIng  th.n  others 
rho.e  who  df,l  in  iiHiele.  that  are  conalantly  ehanglng  niu.t  Ivlng  their 
noreltie.  before  the  pnblici  on  the  other  hand,  thow  who  deal  In  .tapla 
iooda  with  a  limited  range  of  euitomer.,  and  where  the  price  i.  a  matter 
•t  111  rket  qiiotalioni,  auch  a>  grain,  etc.,  never  need  to  advertiie  at  all. 
Hi.'  In  the  general  matter  of  charge!  and  eipenaei.  when  thev  have 
'x-tv  .r,  nged  m  a.  to  comport  with  the  .i»e  of  the  buaineai,  the  thing 
1  Ik  k.  pt  conalantly  In  view  I.  to  get  good  value  for  the  expenditure, 
»liit  .er  n  rent,  aalarief,  iniurance,  adrertiiing,  or  what  not. 

PEBao.xAt  Drawinoi. 
It  HOC.  without  laving  that  pertonal  drawing!   from  the   firm  and 
per.onal  expenditure.  >hnuld  be  on  an  economical  icale  alM.    Thi.  1.  a 
1  latt.  r  requiring  careful  adju.tment  where  there  are  two  or  more  part- 
ner., and  careful  conaideration  wh--  there  I.  only  one  proprietor.    The 


Amount  to  be  drawn  i.  u.nf> 
should  obvlou.ly  be  on 
between  drawing,  and  * 
exceeded  by  one  or  m. 
by  no  means  entered  a 
1.  a  most  dclu.ive  prac^ 
ing  a  firm's  bankers, 
accounts  to  show  how  t 
for  a  firm  to  enter  amr  ■■ 
member  to  the  rest,  ai: 


■  ■:■■:;,■  •lint 
i'l»  But  ;..  .  ,. 
p.-5i^r  '"«,  tile  I 
i'li-:;  tlif  fipi  II 
ami  hiH  oil  « 

wcnilnri  o*   'H; 

^'    !t»    JlTfH'>,i.).     J.; 

■K-r  tn  •.,.-, 
fn.Bil. 


1  in  the  deed  of  partnership  and 
allow  a  considerable  margin 
^''  he  amount  is  for  any  reason 
inu-unt  of  the  excess  should  be 
»>  <unt.  due  to  the  firm.  Thia 
■i-\itm  been  the  means  of  deceiv- 
li  i-i  between  partner,  to  keep 
;  S.;-  tand  to  each  other;  bat 
If;  .1. .   .um.  that  are  due  by  one 

'  -  •  -    -  -  •      ■    "  '  *''   '  creditor  in  that  .hape. 

Is  a  procecdmg  that  border,  ipi-.  fnn.l.  'i.,i.  practice  is  particularly 
dangerous  when  a  partner,  by  .rr.:ii,-i.i'.  r  ni:b  the  other  member  of  the 
firm,  I.  allowed  to  dr.Hw  out  a  considir  iblc  sum.  poaiiblr  to  build  hlm- 
»elf  a  house,  or  enter  on  a  .peculation.  The  real  capital  if  the  firm  may 
be  largely  depleted  in  this  way  without  its  being  apparent  in  their  state- 
ments. 

Proorkssitbnbss  and  CouRTKsr. 
In  these  day.  of  increasing  competition  where  business  is  apt  to 
assume  the  form  of  a  contest  and  only  the  fittest  .urvlve,  it  is  essential 
that  the  principals  of  a  firm  shall  he  constantly  on  the  watch  to  note  new 
developments,  new  markets,  new  methods,  new  economics,  new  style,  of 
good.,  new  method,  of  lrnn.portalion.  All  the  worid  i.  rapidly  becoming 
one  country,  and  the  liucctssfnl  merchant  wUl  keep  an  eye  upon  whatever 
i.  going  on  that  bears  upon  his  business. 


<4 


BANKING   AND    COMMERCE. 


In  doling  with  his  cmtomm  s  meroh.nl  will  oUtne  the  miiim, 
Civilitjr  co.t.  nothing,  but  i.  worth  a  good  dtal."  M.ny  .  merchanl 
»poiI.  hi!  trade  by  a  deficiency  in  thii  rejpecl.  He  ia  impatient,  and  if 
hi>  cuatomen  don't  like  the  good,  he  i.  ahowing  them,  he  will  not  take 
the  trouble  to  ahow  them  aomcthing  elae.  True,  a  merchant  lometimea 
knows  what  will  auit  a  customer  better  than  does  the  customer  himself 
But  It  is  bad  policy  to  say  so,  or  to  ahow  that  he  thinks  so.  A  drv 
goods  merchant  should  make  a  practice  of  svatematically  clearing  out 
all  goods  that  arc  fxuK.  or  becoming  «o.  That  waa  another  of  Mr 
Stewart's  cardinal  rules.  He  made  a  point  of  having  nothing  but  salable 
goods  on  his  .helves.  But  there  U  a  great  temptation  to  hang  on  to  stock 
that  has  once  been  bought,  and  some  men  constantir  do  it,  hoping  against 
hope  that  it  will  be  sold  in  ordinary  course.  It  is  an  unpleasant  thing 
to  sell  goods  at  a  loss,  but  it  is  often  true  economy  in  the  end.  The 
procew  of  weeding  will,  of  course,  be  carried  on  by  the  principal,  so  as 
to  ensure  that  good  plants  may  not  be  pulled  up  with  the  weeds. 

Valui  op  CAHEFcr.  Accounting. 

The  final  element  of  business  success  is  the  keeping  of  ii<-e»rii(e 
accounts,  and  the  systematic  balancing  of  them  once  a  Tear  at  least.  It 
has  been  said  of  many  a  merchant,  but  perhaps  more  frequently  of  a 
manufacturer,  that  he  doe.  not  know  what  his  goods  cost,  and  therefore 
he  is  deluding  himself  during  the  whole  time  that  he  is  selling  them 
The  only  eficient  check  upon  this  is  the  careful  taking  of  stock,  and 
periodically  balancing  of  books.  In  stock  taking,  when  goods  on  hand 
»ri'  written  down  to  what  the  merchant  could  buy  them  et  for  cash, 
or  what  he  would  be  willing  to  give  for  them;  when  all  accounts  are  put 
at  their  collectible  value,  and  written  off  if  they  have  none;  and  when 
due  allowance  has  been  made  for  depreciation  in  filed  property,  a  mer- 
chant will  sometimes  be  astonished  to  find  that  he  has  not  made  half  the 
profit  he  had  anticipated,  or  perhaps  none  at  all.  This  being  so,  he  will 
naturally  endeavor  to  ascertain  where  the  leak  is,  overhauling  every 
department  of  his  business  for  the  purpoM.  He  will,  after  this,  buy 
more  carefully,  sell  more  closely,  economise  expenditures,  collect  more 
sharply,  and  barrow  less  money— thus  laying  a  foundation  for  a  satis- 
factory result  in  future. 

It  may  be  objected  to  this  that  many  a  man  has  prospered  and  made 
a  competency  in  Canada  who  conducted  his  business  by  "rule  of  thumb" 
and  never  made  out  a  balance-sheet  in  his  life.  There  have  been  cases, 
no  doubt,  where  great  natural  shrewdness  and  ability  in  buying  and  sell- 
ing have  brought  out  such  results.  But  these  were  eiceptions,  even  in 
the  early  days  of  the  country.  Bjt  now  that  population  has  increased 
and  competition  increased  with  it,  the  "rule  of  thumb"  must  perforce 
give  way  to  the  keeping  of  accurate  accounts. 


CHAPTER  X. 
MANUTAOTCBINa. 

E.RLV      D.,.„p„,NI,     O,      MANor*CTI,«.NO-SuiTA.LE      LOCAT.OK— 

Bonu«^-Th.   Socc.«,ui,   Makuf»ct™„_Ca,,ta..   Rc,u.,.»- 
P.0P«  Mach.«rv-W„at  Good,  to  Make  and  to  Whoh  Th.t 

A»»     TO      B.      S0tD-C0»..0NME.-,T.-S.lI.,NO     Ao.NT.-Sal..     TO 
WHOIMALI  MIRCHANTIH-IN.II1ANCE. 

'T>HE  .ubitct  of  Manufacturing,  apart  fron,  the  prtly  development,  of 
■«.  a  primitive  condition,  at  once  open,  up  thi.  fundamental  que.tion, 
.  ■""••»  n«l"ral  capacity  or  .nitablene.,  exist,  in  any  given  country, 
«,ofe^!e  "  T^  "■""'"'  ''"  ""  P««'"*™  °f  «'^'  V  manufacturing 
L?^T  7..'  ""'""  '°  ""■'  ">"""™  ""f^'  "PO"  "■<=  P^Wein.  thai 
gather  round  the  controversy  between  free  trade  and  protection.  These 
problem,  ,1  „  not  within  the  «»pc  of  thi,  worl,  to  consider,  mlliec  it  to 
! lit^b^^  "f  """orsally  acknowledged,  that  the  primary  condition,  of  the 
•uitability  of  any  country  for  manufacturing  are  two,  the  poMession  of 
P0|rer,  and  the  possession  (or  possibility  of  acquiring  at  a  competitive 
price)  of  roir  maUru,l.     There  are  .eeondary  consideration.,  .uch  a.  a 

Ztl:^y  '""'- "'"'  '"=  '''"''""^  "'  ■»""»"■  •"■'  "»  '-«<"-« 

.nd^?!^  "■ «'  "'°  ."?  ^"°"*  '°»'="'"'  """»'f«'='"ring  is  most  natural, 
and  if  efficiently  carried  on.  most  profitable.  Where  onlv  one  of  them  is 
found,  the  possibility  of  profitable  manufacturing  depend,  on  the  cort 
of  bringing  the  two  info  conjunction.  Where  neither  of  them  i,  found 
profitable  manufacturing  i,,  generally  apeahing,  hopeless. 

Earlv  Dfveiopment,  of  Manupactuhino. 
The  early  developments  of  manufacturing  almort  invariablv  arose 
around  «.«(er  po„r..  Thus  it  was  with  nearly  all  the  manufieturing 
to«i,  of  England.  The  stream,  that  flowed  down  from  the  central  moor- 
lands of  the  North  gave  riM  to  the  fall,  and  power,  that  were  the  origin 
of  the  manufacture,  of  Lancashire  and  Yorkshire.  Thus  it  wa,  also  in 
Scotland,  in  central  England,  in  New  England,  and  notably  with  the 
powers  arising  from  the  great  river,  of  Canada,  and  of  the  United 
States. 

The  development  of  coal  mining  introduced  a  new  clement  into  the 
question,  which  element,  in  moat  ca.e.,  ha,  become  the  dominant  one. 
Except  In  a  few  centre,  where  water  power,  are  found  of  prodigious 
magnitude  and  continuity— inch  a.  Ottawa,  Minneapolis,  and  Kew.atin, 
the  power  of  coal  ha,  not  only  become  supplementary  to  the  power  of 


M  BANKINO  AND   COMMEBCE. 

w»ter,  but  hai  almoit  supplanted  it.  But  even  in  localltlea  where  water 
power  hal  fallen  almoit  into  diiuie,  and  great  manufacturing  citlef 
•re  found  at  the  pment  day,  whoae  engine!  are  almist  wholly  run  by 
the  power  of  coal,  it  will  generally  be  found  that  some  water  power 
waa  the  beginning  of  its  development.  Thus  it  was  that  several  little 
converging  moorland  streams  in  Yorkshire  were  the  origin  of  the  lo«n 
of  Sheffield,  though  the  power  derived  from  them  is  now  iniinitesimally 
small.  The  little  river  Idle,  which  is  hnmorooslv  said  to  be  the  hardest 
working  stream  in  the  world,  flows  down  the  western  sides  of  these  same 
moorlands,  and  was  the  origin  of  many  of  the  thriving  communities  of 
Lancashire,  Manchester  included.  Yet  hard  as  the  little  stream  works, 
its  total  power  and  that  of  other  streams  like  it  is  a  very  small  factor  in 
the  total  production  of  the  district. 

Nature  itself,  that  infallible  mother  of  all  forces,  has  indicated  with 
certainty  where  manufactures  may  profitably  flourish  And  it  is  one  of 
the  most  striking  developments  of  these  days  that  water  power  is  asserting 
itself  again  as  a  generator  of  Electricity. 

Suitable  Loc.\tions. 
But  though  a  given  country,  as  a  whole,  may  have  the  natural  elements 
of  manufacturing  success,  it  is  not  every  locality  that  is  suitable  for 
every  kind  of  manufacture.  Other  elements  have  to  be  considered,  and 
particularly  the  important  factors  of  labor,  economical  supply  of  raw 
material,  and  the  ease  of  reaching  a  consuming  market.  What  particular 
manufacture  will  suit  a  certain  locality  has  finally  to  be  determined  by 
these.  It  has  become  plain  that  flour  milling  suits  Minneapolis,  saw 
milling  the  OtUwa  Valley,  cotton  manufactures  New  England,  iron  and 
steel  Pennsylvania.  Cotton  spinning  flourishes  in  Lancashire,  but  an 
attempt  to  introduce  it  into  Yorkshire  was  a  signal  failure.  Montrec! 
has  remarkable  facilities  for  a  variety  of  manufactures,  and  a  variety 
of  them  are  therefore  found  in  that  city  and  neighborhood.  So,  by  a 
natural  process  of  development,  each  of  the  manufacturing  towns  of 
Canada  has  come  to  be  what  it  is;  and  the  best  has  come  to  he  made 
both  of  our  coal  mines  and  the  water  powers  of  our  smaller  rivers,  such 
as  the  Trent,  Otonabee,  and  Grand  in  Ontario,  and  the  St.  Francis 
and  the  Chaudiere  in  Quebec.  And  what  is  true  of  Canada  is  true 
of  the  United  States  on  a  much  larger  scale.  In  a  forest  covered  country, 
as  most  of  Canada  was  originally,  the  most  natural  form  of  manufactur- 
ing was  sawing  up  the  wood  of  the  forest  into  lumber,  or  hewing  it  into 
square  timber.  Both  have  been  the  source  of  great  profit  at  one  time, 
both  have  caused  gickt  lasses  at  another;  the  profit  and  loss  having 
been  generally  traceable  to  knowledge  of  the  business  or  lack  of  it ;  but 
sometimes  to  the  chances  ,:nd  changes  of  winter  and  spring.  But  too 
much  or  too  little  snow  in  the  woods,  or  too  much  or  too  little  water  in  the 
river,  may  spoil  the  labor  of  a  whole  season. 

But  n  person  who  has  been  successful  ns  a  maker  of  timber  sometimes 


MANUFACTURING.  gf 

rondiUon.  of  „|„el,  W  ha,  h.d  no  experience,  and  r„i„„„,  Io.,e.  have 
followed  ll,e  expenment.  Mill,  were  bnilt  where  the  best  condition,  did 
not  exi.t,  and  profit  frittered  awav  in  cost  of  hauling 

one'^twtnr"?-,'^'"""  ","'"  "^''^  ""  ^  ""■''^  P^P"'"  •"<> 
one  that  will  enta,    constant  lo..  nay  be  only  a  difference  in  l«,Uty 

of  half  a  dozen  m,le,.  To  Wate  a  miU  on  one  ,idc  of  a  .tre.o,  or  the 
other,  or  on  the  eastern  side  of  a  hill  instead  of  the  west,  may  make  the 
difference  to  the  owner  of  a  fortune  or  ruin. 

The  .ame  principle  applies  to  another  natural  industry  of  Canada, 
the  flour  nnll;  a  business  that  has  undergone  a  rtrikin,;'  development 
corresponding  to  the  development  of  the  country.  The  gristing  mill  of 
former  days,  often  buried  in  the  wood.,  picturesque  in  a„pearance, 
w,th  the  rudest  description  of  equipment,  ha.  been  necessarily  replaced 
by  the  substantial  mill  of  these  times,  contiguous  to  a  railway  or  naviga- 
tion, equipped  with  modern  machinery  and  perfect  appliance,  for  power 
and  transport.  '^ 

At  quite  an  early  period  there  followed  woolen  mUl.,  tanneries,  and 
pork  factories;  and,  somewhat  later  on,  breweries,  dLtilleries  coal 
mines,  iron  works,  fish-curing  establishment,  and  implement  manu- 
factories, paper  mills,  etc.,  all  of  which  are  indigenous  to  the  soil,  and 
work  up  the  natural  products  of  the  country  or  its  contiguous  water.. 
In  all  these,  as  in  flour  milling,  there  have  been  enormous  development, 
from  the  past  to  the  present;  and  in  all  of  them  much  money  ha.  been 
both  made  and  lost. 

But  there  are  now  in  the  country  manufacture,  of  a  different  dewrip- 
tion  which  have  yet  attained  a  high  degree  of  development  and  give 
employment  to  a  large  number  of  arliMn..  These  differ  from  the  fore- 
going, inasmuch  as  the  raw  material  they  work  up  i.  not  a  product  of  the 
country.  They  owe  their  inception  and,  in  part,  their  continuance,  to 
legMlative  conditions,  for  which  reawn  it  i.  considered  bv  .ome  that  they 
.hould  never  have  be -n  set  on  foot,  and  have  no  right  to  be  continued. 
(Many  of  them,  however,  have  Tcry  fine  water  power.)  These  manufac- 
tures, however,  exist,  and  their  development  illustrates  the  importance  of 
locality  as  much  as  those  before  mentioned.  .Some  mills  have  never  been  a 
success,  and  if  they  had  been  owned  by  private  individuals  the  partio 
would  long  ago  have  gone  into  hankrnptCT.  In  other  cases,  after  the 
diflicultic.  that  attend  all  new  enterprise,  had  been  overcome,  succes.  ha. 
been  conrtant  and  remarkable.  .Ul  of  them  demonatrate  the  poinU 
in.l.tcd  upon,  vi..,  that  an  ample  supply  of  power,  either  of  water  or 
coal,  an  easily  available  .upply  of  raw  material,  good  communication, 
both  to  and  from  the  factory,  and  command  of  efficient  labor,  are  the 
foundation,  of  success,  without  which  the  largest  expenditure.,  the  most 
efficient  machinery,  am)  most  economical  management  will  be  in  vain. 

There  must,  in  the  nature  of  things,  at  some  time  be  a  pioneer  ertab- 
liahment  in  the  caie  of  every  manufacture  In  every  locality.     It  is  not 


il 


m  BANKING   AND    COMMERCE. 

■eldom  the  cane  that  a  large  amount  of  money  U  lost  while  the  experiment 
la  in  progrcit,  even  if  nucceu  be  atUined  ultimately.  Some  of  the  well- 
ertabliihed  manafacturcs  of  Canada  were  commenced  by  men  who  were 
not  diicouraged  by  loifes  at  the  outMt.  They  persevered,  but  not  on 
the  same  lines.  They  tried  experiments,  found  out  defects,  introduced 
new  methods.  Thus,  sometimes  very  slowly  at  first,  but  surely,  they  dis- 
covered the  art  of  not  only  making  goods  but  making  money." 


Closely  conectcd  with  the  matter  of  locality  is  the  practice,  once  so 
common  in  Canada,  of  municipalities  offering  inducement  to  manu- 
facturers to  establish  their  business  amongst  them.  This  practice  is 
unknown  in  Great  Britain,  and  it  has  been  of  doubtful  advantage  to  this 
country.  For  it  is  certain  that  unless  a  manufacturing  business  is  estab 
lished  in  a  proper  locality  it  cannot  permanently  succeed. 

The  great  centres  of  manufacturing  industry  in  Great  Britain  have 
not  become  so  by  chance,  or  by  means  of  miinicipal  bonuses,  but  because 
of  their  facilities.  ^Vhy  are  they  all  found  in  the  North,  or  in  other 
localities  contiguous  to  hills.'  It  is  because  of  the  water  power  originally 
found  there.  In  the  early  days  of  development,  when  a  district  is  only 
imperfectly  known  except  to  the  people  therein,  these,  knowing  the 
district  to  have  advantages,  may  reasonably  call  attention  to  them,  and 
offer  inducements  to  a  mannneturer  to  establish  himself  amongst  them 
rather  than  elsewhere.  These  inducements  Mill  offset  the  risk  of  building 
and  bringing  capital  to  a  place  hitherto  unknown.  Its  success  as  a  seat 
of  manufacture  has  to  be  proved,  and  it  may  take  years  to  accomplish 
it  Remission  or  reduction  of  taxes,  or  an  actual  bonus  in  money,  may 
therefore  be  offered  without  violating  any  economic  principle.  If  the 
place  proves  to  have  the  advantages  claimed  and  the  parties  receiving  the 
bonus  have  capital  and  rapacity,  the  experiment  will  succeed,  and  other 
enterprises  follow.    Then  bonuses  should  cease. 

But  when  the  people  of  a  town,  simply  out  of  a  spirit  of  ambition, 
or  what  is  called  enterprise,  seek  to  draw  manufactures  to  a  place  without 
natural  advantages,  the  effort  is  foredoomed  to  failure.  Any  mann- 
fncturer.  looking  round  for  a  s|>ot  in  which  to  commence  operations, 
will  beware  of  being  tempted  by  n  bonus  to  an  undesirable  locality. 
Better  borrow  the  money  at  ten  per  cent.,  supposing  it  necessarv  to 
imttTQw  at  all,  .ind  settle  in  a  desirable  locality,  than  get  a  supply  of 

2<i  It  IB.  Hd  linn  l«^n  ob««r\-ed.  foreign  to  the  purpoae  of  lhfi«  treatise  to  dli- 
cnm  the  economic  queatlons  ronnected  with  these  latter  line*  i.t  industrj-.  But 
it  may  be  obeerved.  and  It  de»frves  to  be  noted,  that  even  such  Induatrlea  may 
be  considered   Indlgienoua,  at   any  rate   to  this  extent,   that   the  raw  materials  of 

tml  of  them  are  produced  on  this  continent.   If  not  In   this  country,  and  that 

have  the  means  of  economical  production  In  our  water  power,  and  access  to 
mines:   also  In   a  supply   nf  suit.ible  labor  and  of  ecinomlcal  distribution   In 

vreat  lines  of  r&llway  and  rIver  transportation.  And  It  Is  an  undoubted  fact 
much   of  the  water  power  which   nature  has   riven   ua   would   be   wasted   if 

•  enterprises  censed  to  exist. 


JrANUFACTUHIXG. 


J9 

money  for  „„,|,i„g  i„  „„  und.-,i,„blc  one.  And  the  people  of  ,  n.u„ici- 
palty,  under  ,„ehe„eun„tance.,  will  learn  by  unplea.ant  experience  thai 
liking  Z7"  "'"'       '■''  '"°"°"  "'  ""  '"'"''  ^"'"P"«=  """ 

over  (h.  «,m.  , ,.ll„ed  up  .11  .h<  cr^.  S  ,h,^,f     a„  "'""■"  •°°*' 

l«"  .IniMle  and  Heavy  .<».  or  Mplul    TtT-L^l'  ,  '*"'"■  ""'  "  ""'"- 

out  a.  .„  „b4„,  ,«„„„  ^  „,.^.„„j  „rrprtt  "."ad^  ,  °t.*""'  ""L",'"* 
leuotu  of  ,he  Bamo  kinH      d™.  -*.-  1.  »■  I"  .      1  aiiiuiH,    i-.ii,    Dai    sdme    object 

na.un.1  o.„d!,Z  ha^'' bf^  dtl'o'^'^^dTnrZ,?"'"^'.",'  ""^"™  """ 
bMr.  oDM-^ed,    dnd    r>uslneu    prtmiplea    iruuBht    to 


CHAPTER  XI. 
THE  BUOOIBBTUL  KANUFACTUBER. 

CArirAL      Rk^vircd — Pboprr      Maciiinrry— Conhonhknti— Sillimq 
AaiNTf — Salm  to  Wholesalk  Mibchanti — Ihiuranci. 

¥T  may  at  first  sight  xem  ahnrcesury  to  make  a  distinction  brtween 

A     the  successful  merchant  and  the  successful  manufacturer.     But  the 

iwints  of  difference  are  important  enough  to  make  it  desirable. 

Almost  all  that  has  been  said  respecting  a  successful  merchant  applies 
also  to  a  manufacturer;  hut  all  that  applies  to  a  manufacturer  docs  not 
apply  to  a  merchant.  In  using  the  word  "manufncturpr."  it  should  be 
understood  that,  in  this  chapter,  a  flour  miller,  a  tanner,  sugar  refiner, 
aaw  miller,  [lork  packer,  and  hewers  of  squared  timber  are  included. 
They  all  produce  goods  by  a  manufacturing  process^  thopgh  they  are 
not  generally  called  "mnnufacturers." 

To  be  a  successful  manufacturer  implies  at  the  outset  that  the  goods 
produced  are  such  that,  speaking  generally,  there  will  be  some  certain 
demanti  for  them.  There  are  goods  which  are  subject  to  the  changes 
of  fancy  and  fashion:  it  is  then  of  primary  importance  for  a  manu- 
facturer to  watch  these  changes  and  regulate  production  accordingly. 
There  are  others  for  which  the  demand  is  certain. 

But  though  a  man  may  be  sure  of  selling  the  goods  he  produces, 
it  by  no  means  follows  that  he  can  always  sell  them  at  a  profit.  A 
manufacturer  may  have  an  imperfect  equipment,  or  insufficient  knowledge, 
or  inadequate  capital,  in  which  case,  so  strenuous  is  modern  ciunpetition, 
that  to  make  profit  is  o;it  of  the  question. 


Capital  Required. 

With  regard  to  capital,  it  is  obvious  that  more  is  required  for  a 
manufacturer  than  for  a  merchant.  A  merchant  buys  the  very  goods 
he  sells;  and  can  generally  buy  them  on  credit;  the  only  immediate  cash 
outlay  on  them  being  for  freight  and  duties.  He  can  generally  lease 
the  warehouse  in  which  he  does  business.  But  a  manufacturer  can  rarely 
rent  his  mill  or  factory;  in  fact,  it  is  almost  a  necessity  for  him  to  own  it. 

The  minimum  capital  on  which  a  manufacturer  can  carry  on  business 
with  ease,  is  that  ext>cnded  on  land,  buildings,  plant  and  machinery. 
But  it  is  certainly  desir.ible  for  a  manufacturer  to  have  some  capital 
beyond  this,  otherwise  he  may  find  himself  seriously  embarrassed,  in 
a  time  of  monetary  pressure.  It  is  only  prudent  therefore  for  him  to 
allow  his  profits  to  accumulate  until  he  can  look  circumstances  sqnsrely 
In  the  face  no  matter  what  financial  changes  may  transpire. 


THE    SUCCESSFUL    MAXUFACTUHEh. 
Proper  Machikkbt. 


71 


Bui,  though  being  in  po.m.ion  of  .dequ.l<.  capital,  it  mav  be  .afely 
Mid  that  a  manufacturer  cannot  be  .uccewful  unleu  he,  or 'a  manager 
nader  him,  ha.  a  facullf  for  machtn.rt.  "nd  ean  tell,  a.  by  inrtinrt, 
wlwtJier  any  particular  machinery  i>  ieniceable  and  workable  Thi« 
faculty,  if  he  baa  it,  will  enable  him  to  make  economical  repair,  and  re- 
placement., or  introduce  improvement.,  perhap.  peculiar  to  binuelf.  For 
it  1.  a  necenity  for  every  factory  to  adopt  current  improvement,  when 
their  merit  ha.  been  demonatrnted." 

Here  it  i>  that  tlie  faculty  for  machinery  will  have  it.  .cope.  It 
mil  enable  a  manufacturer  to  judge  whether  the  new  thing  i.  „  good 
thing  and  whether  improvement.,  .o  colled,  will  reallv  imi.rove;  or 
whether  he  cannot,  by  .ome  alteration,  make  hi.  own  machinery  answer  the 
Mme  purpoae.  The  proprietor  of  a  large  flouring  mill,  not"  in  Canada, 
once  Io.t  a  large  .um  of  money  by  hastily  adopting  a  new  method  recently 
patented.  The  mill  wa.  at  a  .tandstill  for  some  time  while  the  altera- 
Imn.  were  being  made,  and  its  customer,  were  obliged  to  trade  elsewhere 
Hut  when  the  mill  started  again,  although  a  great  flourish  of  trumpet, 
had  been  made  about  the  new  process,  it  was  found  to  make  no  better 
flour  than  the  old  and  no  cheaper,  and  in  the  end  it  was  abandoned 
altogether. 

What  Goons  TO  Make,  and  to  Whom  They  Are  to  Be  Sold. 

The  question,  however,  now  arises  to  whi.ii  all  that  has  been  referred 
to  is  preparatory,  vis.,  ir*o/  goods  are  to  be  manufactured,  and  to  trhom 
and  hatt  are  they  to  be  sold.>  It  is  not  necessary  in  a  tre.ilise  like  this 
to  enter  upon  the  specialties  of  the  many  line,  of  manufacture  estab- 
lished in  the  country.  The  greater  part  of  them  are  of  staple  products. 
But  there  i.  thi.  to  be  said,  that  it  is  highlv  conducive  to  lucce..,  even 
in  the  manufacture  of  staples,  for  the  manufacturer  to  make  a  special 
article,  and  to  brand  it  with  his  own  name,  so  that  it  mav  have  a  name 
in  the  market,  familiar  to  his  customers  and  the  public.  Unless  he  can 
do  this,  he  will  rarely  make  profit.  There  i.  a  general  .and  noticeable 
movement  toward,  specialising  manufactured  goods,  and  labeling  them 
with  a  name  which  carries  with  it  a  guarantee  of  quality,  even  of  such 
articles  as  flour,  pork,  whiskey,  etc.  The  reputation  once  established, 
the  demand  is  certain,  and,  in  most  coses,  the  profit  is  assured. 

But  in  such  line,  of  munufaclure.  a.  cottons,  woolens,  boot,  and 
•hoes,  rubber  goods,  etc.,  etc.,  many  varieties  are  to  be  found.     .Some  of 

•»  Not  tliat  every  new  im  In  maolilaery  Is  to  be  adopted  n.  s.mn  a>  It  ootnes 
out.  A  thlnE  Is  not  nece.eartly  »ood  because  It  l>  now.  Tile  patent  offlo,,  „ 
»a.bln«ton  and  Otuwa  contain  hundreds  of  model,  or  Invention.,  and  of  sup- 
posed Improveinent..  which  turned  out  on  trial  to  be  unworkable.  A  manufacturer 
therefore,  while  keepln(  Ms  eye.  open  to  what  Is  transplrint  In  the  wsy  of  Im- 
provements, will  b.  careful  not  to  spend  money  on  what  may  turn  out  to  be  mere 
^•ds,     unless  Indeed  he  ha,  capital  enou.h  to  enable  him  to  .pend  money  In  es- 


n 


BANKING    AND   COMMERCE. 


thtM,  too,  arc  ifaiplt,  tnil  olhrn  Hi*  of  fht  kind  whrre  tutc  »nd  fancj 
liave  «»«_t;  inch  u  rolored  and  fancy  cottom,  woolcni  and  lilka.  In 
agiicnitural  Implcmrnli  alM  a  coniidcrablc  clement  of  taile  and  fancy 
haa  away,  and  competition  prevaila  aa  to  the  qnalily  of  varioui  kinda  of 
macUnea.  For  the  wiie  prodaction  of  Ihene  clanei  of  goodi,  Ihc  same 
initlnctivc  feeling  of  what  mil  •nil  He  aiaritct  ii  required,  that  haa  been 
referred  to  in  the  ease  of  a  merchant. 

CoNflnNMENTi. 

Failing,  however,  from  Ihc  cnnsldemlion  of  what  la  to  ho  mann- 
factnrcd.  to  that  of  hoir  the  prodiirtlona  of  the  factory  are  to  be  toW; 
a  wide  fieid  is  entered  upon,  which  brings  the  manufacturer  into  cloie 
contact  with  the  banker.  At  the  outset,  questions  arise  as  to  whether 
goods  shall  be  sent  on  rontifnmtni,  or  whether  they  shall  It  coade  to 
reach  the  merchant  direct;  whether  the  services  of  a  Mllntg  agent  shall 
be  secured,  through  whom  the  whole  product  shall  be  distributed  to  tht 
dealer,  or  whether  dealingi  shall  be  with  customers  direct. 

With  regard  to  consignmrnU,  it  has  long  come  to  be  regarded  as  an 
unprofitable  method  of  doing  business.  Manufacturers  of  goods  for 
export  have  long  seen  it  necessarr  to  establish  such  connection  abroad 
that  they  can  make  •ajei.  at  definite  prices  and  on  definite  terms  of  tia« 
and  delivery;  and  will  not  trade  except  for  what  are  called  "firm  ofen." 

Skllina  Aornts. 
Manufacturers  of  cotton  and  woolens  have,  however,  found  the  coB- 
v.^nience  of  dealing  through  a  selling  agent  who  will  guarantee  salea; 
or  will  accept  himself  against  the  goods  that  pass  through  his  handa. 
It  saves  a  large  amount  of  olBce  work,  and  seems  also  to  save  a  con- 
liderable  amount  of  risk  in  giving  credit  to  a  large  number  of  traders 
scattered  over  the  country.  But  experience  has  proved  that  though 
trouble  and  office  work  nre  »aved,  (»e  n'sit  remains.  The  selling  agent 
himaelf  takes  the  risk  of  numerous  arcounts;  and  in  dillicult  times  he 
may  himself  succumb.  Hence  it  hag  come  about  that  while  the  ser\icea 
of  a  selling  agent  are  retained,  he  is  in  some  cases  relieved  from  the 
responsibility  of  accepting  against  goods,  or  guaranteeing  accounts,  a 
diiference  in  remuneratioTi  being  made  accordingly.  The  manufacturer 
then  deals  directly  with  llir  customer  so  far  as  collectii^  is  concerned, 
and  takes  the  risk  of  giving  credit.  This  arrangement  is  looked  upon 
with  much  more  favor  by  the  banker,  for  obvious  reasons.  The  practice 
of  selling  goods  through  an  agent  is  found  convenient  in  the  case  of 
factories  located  in  country  districU.  The  selling  agent  in  such  caae* 
performs  the  service  of  a  well-informed  partner.  Being  resident  in  a 
nieicantile  centre,  he  can  give  the  manufacturer  advice  as  to  changes  of 
fancy  and  taate;  and  prevent  him  running  on  undesirable  goods. 


L 


THE   SUCCESSFUL   MANUFACTUREH. 


7f 


Suit  lo  WiioLiiALi  MucHAxn. 

In  Doit  linn  of  nunafutare,  the  natnral  count  ii  to  kU  to  the 
whokMle  iKKhut.  In  thU  caur  the  manafactnrer  will  have  large 
anwunti  in  hii  hooka,  npeclally  in  the  timber  trade,  where  it  ia  a  common 
practice  to  aell  the  whole  product  of  the  year  to  one  mercantile  hooae. 
Thia  Involvti  eiceptional  riik,  and  a  prudent  banker  will  be  careful  ai 
to  diaconnting  billa  of  the  magniti-de  called  for  unleaa  a  lien  it  preterred 
•n  the  good!  until  payment.  But  throughout  all  thete  aelling  arrange- 
mcnfi,  where  paper  It  required  to  be  taken,  a  prudent  manufacturer  will 
nlwav.  keep  in  touch  with  hit  banker,  a>  to  irAom  to  credit,  and  to  irAai 
amount. 

The  latt  coune  open  to  a  manufacturer  it  to  tell  to  the  retailer. 
Thit  la,  or  certainly  wat,  a  commci  practice  in  Great  Britain,  but  It  hat 
not  taken  root  here,  except  Indeed  In  the  cate  of  the  departmental  cIIt 
itorea,  whote  purchaiei  are  on  the  lame  acale  at  thote  of  a  wholeiale 
merchant,  and  are  treated  aa  luch  by  a  manufacturer.  It  It  evidently 
not  deilrable  for  the  manufacturer  to  .ell  to  the  ordinary  retailer,  for  in 
that  cate  he  will  endanger  hit  trade  with  wholetale  houiet.» 

Inivhance. 
In  the  matter  of  Iniurancc  there  It  even  a  greater  necettity  for  a  care- 
ful outlook;  for  the  damage  to  the  butinett  of  a  manufacturer  by  Are  It 
ntually  far  more  teriout  than  to  a  merchant  It  It  much  more  eaty  for  • 
merchant  to  obtain  new  premliel  and  a  new  itock  of  goodt  than  for  a 
manufacturer  lo  replace  his  buildlngt  and  machinery.     The  fact  that  a 

!•  The  method  ot  dlepoalna  ot  .uple  export  aooda  by  ccnelninieiit  WM  tjr- 
merly  .Imct  unlverwl,  but  It  1...  ],-  to  .o  maay  loew.  ..  to  have  been  Ura!!!, 
abandoned  It  wat  an  eaey  way  of  dolni  buslneea  to  forward  rxide  to  a  con.linea 
!!l»i'.„ML  r  .""."  """"•  *"*  ""''  •  M"™"*'  •■•In"  them,  that  percental, 
ta  tre.IT:''™  nl^,'!/  ^""  '°  "  """"  '"  '"  '"'""•  Tl"  maraln  wool" 
iL^IIl.  Ll^^,  1""  *°°"  •'"""■  *  '•'»'••"•  ">"k«;  aM  "•ny  an  export., 
JSlnTl.H,  M  ".k""""?  "  "  *  ""'""•  "*"'     "■■'■  "  -'  -J'-lvln.  ha. 

«l.n  awaltM  him  on  the  receipt  of  Account  ■)«,  :  m  mnj  easei  th^-ro  waa  a 
halanee  nialn.t  him  In.Md  of  to  hi.  orrdll  wbl^b  t  l«nce  l„-  «a.  called  upon  to 
nay.  The  technical  name  for  thi.  I.  -reel. -..mien  ,  ,„rd  which  ha.  had  an 
omlnon.  .ound  for  many  a  .hlpper,  and  p  o,.  1  .1.,  oep  ,.nlni  ot  h  .downfall.  A 
con.lpiee  wh.n  hi.  own  acceptance.  i.re  rcmina  -la*.  .,,.1  market.  »r.  adver... 
rJi  •»""l'"«^"'«u»l>'"  hi.  corre.pond.-r,l.'  aood.  An  an»!rupul.. ..  •on.lanw. 
T^rJ:  •"  advancln,  mark.,  ha.  been  kno.,:  ..  .i:,  ,,„d.  ,„",!.  ,.,,,  .c^uM. 
randerlni  a  far  Im  favorable  return  than  he  -ou.I  „■  ,,,,,.„  ,,„„  j„„  ^J, 
the  tood.be.n  actually  «,1d.  There  .re,  In  tact,  ajs  d>.  „!.,„  .>  ,  ,  ,„,  ,„,,„" 
•Wnlnr  The  manufacturer  ha.  not  the  adventaae  ot  tliat  direct  c^.n,.,  t  «|ih  .s, 
.^J  "  T  "  ""  """*  elBclent  check,   npo.,  hi.   bnelns.,      I,    he  cili. 

JJ!!;    1^^  not  know  for  w^k.  that  hi.  r»d.  ar.  un.ult.ble  or  badly  m.nufa,,. 

other  be  will  at  once  chant,  hia  method,  overhaul  !.l,  m.chinetv    ,r  boy  mora 

..  .  ""'  •»  "><>u«l»  dimcult  to  arrant.  Mie.  with  buyer.  aci,».  .„>  ,.b  but 
«?  t°o  v^-T::"  '"•""'«■»«"■■  '"••'"•  to  open  commun,'i',rn  «,,"', '4 
muni™.7™  ,.  ,'  ^"?  "  ««"»"P"<">  •'"•*  and  In  thM.  day.  of  .,l,i  com- 
munlcatlon  It  la  bwcmint  eaay  to  do  it.  ^^ 


u 


BANKING   AND   COMMERCE. 


BuafActory  it  ottullr  writ  built,  or  tb«t  it  h«i  anuiuAlljr  good  fire  pro- 
lection^  ibould  never  indnee  a  maaufActurrr  to  diminiih  iMurance.  He 
(Cti  the  benefit  of  hii  good  appUsncu  in  »  lower  rote.  But  to  dimtoJih 
tbe  amount  !•  opt  to  prore  a  terioue  mietskf. 

Another  factor  in  manufacturing  sueceM  moit  finally  be  noticvd.  It 
ti  that  a  Duuiufacturer  ehoiild  be  aboot  hi*  worki  earlj  in  the  nwming. 
One  of  the  moet  couplcuoui  Inttancei  of  tnannfactur.ng  lucceu  that 
Canada  has  knoim,  in  which,  from  imall  beginningt,  an  rnormoui  and 
nuMt  profitable  bnilneai  had  been  bailt  up,  was  characteriicd  by  thii  fea- 
ture.  One  of  the  principali  was  alwaji  about  the  eitabliihment  ai  earlj 
at  anj  of  the  workmen,  going  from  floor  to  floor,  from  room  to  room, 
from  department  to  department.  Doaty  and  dirty  he  was  as  anj  workman 
In  the  building,  before  breakfast.  But  n  few  hours  later  the  same  man 
might  be  seen  on  'Change,  in  the  bank  parlor,  or  in  his  own  oiBce,  guiding 
the  finances  of  his  large  business,  or  attending  to  operations  involving  the 
welfare  of  men  in  all  parts  of  tbe  country.*^ 

With  regard  to  other  elements  of  success,  all  that  has  been  said  of  the 
merchant  has  an  equal  application  to  the  manufacturer. 


■0  It  Is  omoncst  th«M  Ura*  and  dlvemlfled  apheres  of  Induatry.  torn*  m«r- 
ctntlU.  torn*  manuracturlna,  that  banka  Hi  their  principal  field  of  operatlona: 
their  mod*  of  daallny  with  aach  will  b«  fully  opened  up  later  un:  meanwhlla  It 
may  b*  otMcrvad  that  It  would  be  of  extrene  Intareat.  thouah  It  may  not  b« 
poaalble,  for  a  apMlal  Oovarnment  return  to  be  publlahed.  say  once  a  year,  ahow- 
ing  bow  much  aaelstanee  the  banks  were  rendering  to  the  varloua  llnea  of  Indus- 
try In  the  oountiT. 


CHAPTER  Xn. 

ELmuTS  or  suoomruL  bakkimo. 

Wht  *  BtKKn  CoMii  ArTiH  a  Muchant  axd  MAXurACTiniR— Phi- 
•i»«v  Elehehti  or  SicctM-CAFiTAL— It«  Miximum— How  Di»- 
pouo  or— I.OTATIOH  AND  Sttli  or  Owwicr —OtriCIM  AND  CimH 
—Till  Maciii.vi>y  or  thi  Orricr— Ultimati  F.no  axd  Siumixo 
Vr  OF    What  a   Bankrr  Shoi-ld   Be. 

TX  n  Irenliw  on  bnnkinu  and  commcrM  it  li  |>erfccllr  in  nccordoncc  with 
■i-  the  rrinon  of  tilings  lliat  tlw  succruful  menhant  »nd  lOMrMfal  m«n- 
ufni'lurcr  slioiild  !«•  Iri-.it.d  of  beforr  tlie  lurccuful  bonittr.  There 
mait  br  inirolinntt  niid  nmniifnrturers  before  there  can  be  a  remunerative 
buiinru  for  tlie  banlsrr:  and  unli'u  there  are  »ueceMful  men  in  thi>e  call- 
ing»,  a  blink,  r.  though  lie  may  take  care  of  the  .lurplua  money  of  the 
community,  will  tind  it  duii^.rou»  to  lend  money  amongrt  Iheui. 

He  will  he  proicd  to  do  this  beyond  doubt,  and  every  kind  of  influ- 
ence will  be  brought  to  bear  upon  him  to  induce  him  to  comply.  He  will, 
for  example,  be  told  that  he-  mn»t  do  bin  duty  as  a  citizen.  The  town 
■upportl  him,  and  he  ought  to  lupport  the  town.  Il  ia  a  matter  of  plain 
obligation  to  help  its  indurtries  along,  for  these,  it  will  be  aaid,  are  the 
very  foundation  of  his  own  business.  So  the  people  will  say,  and  what 
they  say  is  anfliciently  plausible  to  make  a  strong  Impression.  But  many 
n  banker  has  had  to  sulTcr  severely  for  listening  to  such  representations. 
In  sui  11  circumstances,  (hat  is,  when  t!.ere  are  few  desirable  customen  In 
the  locality  the  banker  will  b.  oNerid  high  rates  of  discount.  From 
•ome  of  the  applicants  In  know,  that  he  could  take,  practically,  what- 
ever he  pleased;  and  from  the  best  of  them,  or  those  who  seem  so,  he  will 
be  offered  rates  such  as  he  might  think  wouH  enable  him  to  provide  a 
safety  fund.  But  on  the  supposition  that  the  business  of  the  town  is  in 
such  a  state  that  there  an  .as  yet  few  or  no  successful  men  in  it,  high 
ratet  of  interest  will  lie  no  proteelion.  Xo  safety  fund  can  be  built  up 
that  is  large  enough  to  offset  the  hisses  which  will  inevitably  ensue.  The 
successful  merchant  and  the  successful  manufacturer  therefore  must  come 
in  order  of  time  before  a  banker  can  do  a  successful  business."* 

•1  It  ni8>-  be  said  that  such  a  state  of  thlngti  as  has  bevn  Imaalned  thus  far 
Is  Impossible.  But  experltnce  retuw.  this  opinion.  A  case  Is  kno»n  to  the 
writer  In  which  In  the  collapse  In  a  cerlstn  town  of  a  remarkable  "boom"  every 
sinde  storekeeper  In  It.  except  one.  fallen.  The  town  Itself  became  bankrupt  and 
could  neither  pay  Interest  nor  principal  on  Us  Indebtedness.  Its  popubitlon  de- 
creased from  3.500  to  700.  Its  main  streets  became  jrass-lrown.  and  handsome 
bulldinvs  became  tenantlesa.  Of  the  money  lent  by  a  branch  bank  In  that  town 
more  than  thtee-tourths  was  lost.     If  the  banker  had  been  a  private   Individual. 

would  have  (one  down  In  the  crash  and  been  ruined  beyond  redemption. 

This  case    was    In   Uanltoba.    but   even    In    Ontario   the    writer  can    recaU   in- 


MKXOCOPV   nSOUITION   TBT  CHA 

(ANSI  and  tSO  TEST  CHABT  No.  3) 


1.0 


12.2 


120 


/IPPLED  IIVHGE 


7t8)   ««J  -  0300  -  Phw.« 


76 


BANKING    AND    COMMERCE. 


Bill  now  on  the  supposition  thnl  in  n  certain  locnlitv  sullioiont  savings 
hnve  been  aceumulnted  to  give  business  to  a  bunker,  and  also  that  there 
are  a  nuinher  of  prosperous  men  of  business  in  the  locality!  what  are  the 
elements  that  make  a  banking  enterprise  successful? 

(1)  Capital  is  certainly  as  much  a  necessity  for  a  banker  as  for  a 
merchant;  for,  speaking  of  him  in  this  personal  style,  no  man  can  ex- 
pect a  community  to  trust  him  with  the  care  of  their  money  unless  he 
has  shown  ability  to  take  care  of  his  own. 

(2)  But  how  much  capital  ought  a  banker  to  have?  WTiat  is  reason- 
able in  the  case? 

PuHing  aside  for  the  present  the  private  banker,  it  may  be  noticed 
that  the  legislatures  both  of  Canada  and  the  United  States  have  dealt 
with  this  question  in  their  banking  laws." 

In  Canada,  where  the  system  of  chartered  banks  inuing  cireuliiliiin  is 
firmly  established,  the  Bank  .\ct  provides  that  no  bank  shall  possess 
a  imdler  paid-up  capital  than  |23O,O00.  This  sum  is  certainlv  small 
enough  for  a  corporation  which  has  the  power  to  issue  notes  for  circula- 
tion—which notes  arc,  in  effect,  guaranteed  by  the  whole  body  of  the 
banks  of  the  country. 

In  the  United  States,  however,  every  banking  office  is  owned  by  a  sep- 
arate corporation  and  some  of  them,  owing  to  the  absence  of  the"  branch 
system,  are  permitted  to  he  organized  on  a  capital  of  only  $85,000. 

This  must  be  conceded  to  be  running  near  the  danger  point.  It  cer- 
tainly imposes  upon  a  bank  of  such  small  dimensions  the  duty  of  incur- 
ring only  the  most  moderate  risks,  and  confining  the  business  within 
limits  more  like  those  of  a  storekeeper  than  a  banker. 

England  has  no  legal  requirement  of  minimum  capital  in  banking;  and 
the  tendency  from  the  beginning  has  been  for  banks  in  England  (as 
distinguished  from  Scotland)  to  have  a  smaller  capiUl  in  proportion  to 
the  business  done  than  is  common  in  Canada;  the  Bank  of  England  alone 
excepted. 

The  reason  for  this  is  twofold;  First,  the  branch  system,  until  lately, 
has  never  been  developed  in  England  to  the  extent  that  it  has  in  Scotland 
and  in  Canada.  The  banks  of  England,  as  a  rule,  do  a  much  more 
hcaliied  business  than  those  of  Scotland  and  Canada.  Secondly,  but  a 
more  important  and  pertinent  reason  is,  that  business  conditions  in  Great 
Britain  are  so  much  more  settled  that  banks  may  safely  work  on  a  smaller 
relative  capital  than  is  necesary  in  this  country. 

stance,  almml  enlnUlnB  It  In  dlw.ler.  During  a  period  or  heavy  eollapie  Ih. 
losses  .urterrd  by  liank!  In  certain  towns  have  amounted  to  a  largo  peroentags 
of  their  assessed  value. 

1!  There  are  no  law«,  properly  jpeaking.  In  Canada,  on  the  .abject  of  private 
banking,  though,  as  experience  has  shown,  some  regulation,  might  have  been 
embodied  In  .peelllc  legislation  with  advantage.  The  only  provisions  affecting 
this  class  of  bankers  .re  contained  In  two  clauses  of  the  General  Banking  Act 
vlr.,  one  to  prohibit  them  from  Issuing  circulating  notes:  the  other  to  prohibit 
them  from  assuming  a  corporate  name,  such  as  that  of  the  -Irofluols  Banking 
Company,       These  provisions  are  obviously  reasonable 


ELF.MEXTS    OF    SUCCESSFUL    BANKING.  77 

Beyond  the  nii»imi.m  required  by  the  Banking  Act  the  member,  of 
e»eh  c„,por.H„„  in  Canada  decide  iV  the,„,clvc,lhat  thl  cT,  W  ",al 

tty  r,:-;:tst  °"  '"^  ""-"=  "■^•'  '■"™'' '°  -^-p^'  •"■> "™  '- 

,omf  b?.!  „*'°r'''"?  '"'"':'  '""^  "'"'  '"^°'ll""""  in  »n>all  town,,  and 

At  the  other  c,  d  of  the  scale  is  an  immense  corporation  like  the  Bank 

all  ovtm;  "■  '"  """  ■'"'''  '•"  "  ""«^  ^""■--™'  centre  brancTe' 
all  o,er  the  I)„,„,„,on,  agencies  in  the  United  States  and  England  and 
d,«ng  bn..nc„  no.  only  with  the  mercantile  community  but  wiU,  ™vern 
mcnts  and  great  railways.  "iui  go.crn 

or  ml"e:"""""°"  '""^  '"''  '""  «""  """^"^  '"*  a  capital  as  $14,000,000 

.0  $wo"oo.''"'  ■'"""  ""  '■""'"  "'"'  ^'"'""'  "■"«'"«  f'-  ^^o-ooo 

tinn^'"!!'!"*  """,""  '"'""™  "^  "  '"'"''  '"""  "'  ""K"'-  "•«  fi"'  considcra- 
tmn  wdl  be  ,n„.„tfon«  shall  the  capital  be  held  Wfore  business  i    ac  u- 

atin  rrbaL  W  """''  ■'"  ''"™"'  "-'^  '"'""™  •■■'•  -quiring  tit 
haveH        ■    ?  ^'^  commencing  business  under  its  provisions  shall 

have  he  whole  amount  of  its  capital  in  cash.  To  ensure  this  it  is  re 
qmred  that  the  cash  shall  be  placed  in  the  hands  of  the  Govemm  nt^^and 
that  no  business  shall  be  done  before  an  authorisation  is  issued. 

A  bank  before  opening  for  bnsiness  in  Canada  will  need  to  arrange  for 
correspondents  in  England  and  the  United  States.  Much  will  dfoend 
upon  a  proper  choice  and  satisfactory  arrangements  in  these  ZLrTn 
Will  also  be  prndenl,  as  soon  as  possible,  to  invest  some  portion  of  the  cap- 
■tal  ,„  reah,„ble  securities,  and  not  hold  the  whole  amount  for  discount- 

»h.eh  the  bank  would  begin  to  incur  to  depositors  and  noteholders,  and 
yet  bear  a  moderate  interest.  They  are  useful  also  to  further  needful 
arrangements  with  English  correspondenta.  Moreover,  the  holding  of 
.uc^h  securities  strengthen,  the  position  of  the  bank,  and  it.  credit  with  the 

Thk  Arrangements  of  the  Office. 

In  the  choice  of  an  office,  two  question,  arise,  the  first  of  which  will 
be  it.  lorMj,;  a  matter  of  a,  much  importance  to  a  bank  as  to  a  merchant. 
It  should  .f  possible,  occupy  a  corner,  for  the  «ke  of  light.  It  should  be 
in  the  wholesale  quarter  of  the  city,  or  if  there  be  no  such  quarter,  then 
not  far  from  other  banks  if  there  are  other,,  not  far  from  the  post  office: 
near  the  market,  or  the  exchange,  or  board  of  trade;  and  also,  if  po.- 
Bible,  near  to  the  retail  shops. 

A  building  will  naturally  be  rtnM  at  the  outset,  for  it  would  be  im- 
prudent to  devote  capital  to  building  at  so  early  a  stage,  and  one  should 
be  sought  that  is  .uUt.ntially  built,  .  good  lire  risk,  with  other  good 


Ml 


78 


BANKING    AND    COMMERCE. 


buildings  about  it.  mid  with  a  lofty  main  floor  to  give  the  bank  a  respect- 
able appenrancp. 

As  to  the  intcrnn]  t'coiiomy  of  the  oHice,  convenience  for  doing  buiinett 
should  be  the  dominnnt  consideration,  and  not  show  or  ornament;  too 
much  of  which  Hisplnys  hnd  taste,  though  the  fittings  should  be  solid  and 
as  good  as  money  can  buy. 

Light  should  be  cnrefuUy  studied  in  the  internal  arrangements,  for 
it  is  of  the  utmost  importance  both  to  those  who  handh;  money  and  those 
who  keep  books. 

A  bad  bill,  or  forged  paper,  may  be  discovered  in  a  good  light,  where 
it  would  be  passed  when  light  is  dim.  A  mistake  also  in  bookkeeping 
M'hich  would  be  readily  apparent  in  a  good  light  may  easily  be  passed  oy 
when  light  is  insuflicicnt. 

The  next  important  element  is  a  judicious  choice  of  of^cert,  who 
should  be  men  who  understand  their  business,  and  display  civility  and 
attention  to  customers  and  the  public.  The  subject  of  officers,  the  divi- 
sion of  their  work,  their  duties  and  qualifications  will  be  fully  discussed 
later.  It  will  be  suflicient  to  note  here  that  upon  a  proper  selection  of 
officers,  a  convenient  arrangement  of  their  work,  and  an  efficient  system 
of  check  and  supervision  no  little  of  the  success  of  a  banker  depends, 
especially  in  times  of  competition.  Without  going  into  detail  as  to  Mnat 
constitutes  the  special  qualification  of  each,  let  it  be  noted  that  there  are 
certain  qualities  which  are  essential  to  the  success  of  any  of  them. 

A  bank  officer  should  be  of  good  character,  honorable  and  tnutworthj 
in  the  instincts  of  his  nature ;  in  fact,  he  should  be  what  is  generally  un- 
derstood as  a  "gentleman"  not  in  outward  manners  merely,  but  in  charac- 
ter. He  should  have  a  good  natural  aptitude  for  arithmetic  and  have 
been  well  trained  therein.  No  matter  how  intelligent  and  well  educated 
a  young  man  may  be  in  other  respects,  a  want  of  aptitude  for  arithmetic 
will  prove  a  fatal  bar  to  progress.^^ 

A  bank  officer  should  write  a  good  plain  hand  and  make  plain  figuT  Jt. 
Many  ^  mistake,  costing  the  labor  of  scores  of  hours  of  officers  to  find 
out,  has  been  occasioned  by  carelessly-formed  figures.  He  should  have 
a  good  general  education.  What  is  known  as  a  good  English  education 
may  be  said  to  be  essential.  Som^  drilling  in  mathematics,  as  distinct 
from  arithmetic,  will  be  found  highly  useful  as  a  young  officer  advances 
in  his  profession.  A  university  education  is  not  necessary  in  the  case  of 
a  young  banker;  indeed,  it  is  rather  undesirable  than  otherwise,  for  to 
acquire  it  a  young  man  will  be  carried  too  far  on  in  years  before  the 
long  course  of  training  begins  to  fit  him  for  the  work  that  is  to  occupy 
bis  life. 


3B  A  former  General  Manager  and  President  o(  the  Bank  of  Montreal  wa» 
well  known  to  have  an  extraordinarj'  faculty  for  arithmetical  calculations.  To 
this  he  owed  all  his  early  advancement,  and  some  of  his  later  remarkable  success. 
He  had,  of  course,  other  prominent  qualities  which  would  have  made  him  a 
notable  man  In  any  sphere.  But  it  was  his  arithmetical  faculty  that  laid  the 
foundation  of  his  success  as  a  banker. 


ELEMENTS   OF    SUCCESSFUL   BANKING.  79 

oivii?,?''  f'Z"'  '""'  .°,',''"  '•"''''">•'•"•  "••l""-  ">  <•'■">»•»(.  habit,  of 
cml.ly  „„d  pafence  All  .oris  of  people  are  to  be  found  at  the  oouMler 
01  a  bank.  Some  of  tnen  are  ignorant,  who  want  mueh  telling  what  to 
do;  some  are  .mpalient  „„d  unreasonable,  who  are  nevertheless  good  eus- 

TZ':  f  .  °"""J'''°  "  '"""'  ""■'  ""P"'™'  ""•  drive  .wav  both 
e  asse.  of  customers.  He  will  need  also  to  enltiv.te  a  habit  of  re/iceaee 
It  ,s  a  e.rd,nal  rule  in  all  banks  that  elerks  and  ollieers  must  never  talk 
on  s,de  of  w-hat  they  see  or  hear  inside.  The  whole  business  is  conHden- 
tial.  A  banker  who  ,s  master  of  his  business  will,  amongst  other  things, 
suffieiently  understand  human  nature  to  gather  about  him  sueh  men  a,  are 
here  indieated.  One  bv  one,  and  during  a  eonsiderable  time,  he  will  pur- 
sue th,s  .■nd,  seleeting  and  training  hi,  offieers  until  thev  are  thoroughly 

■atrf^et  >  7  """  "^"^  '"■"'  "  '""'■"  '■''"  ''"y  °"  l-i'  business 
satisfaetorily  so  far  as  its  internal  eeonomy  is  eoneerned,  and  fultil  the 
purpose  for  whieh  the  business  was  commenced. 

Thus  far  with  regard  to  a  banker's  staff  and  machinery.  A  banker 
howenr,  ■..«>•  carry  on  every  department  of  his  routine  business  elticient- 
Jy,  and  yet  fa,l  ,n  the  essential  object  of  doing  well  for  himself.  He  mar 
f..l  so  fa,  as  not  only  to  lose  part  or  the  whole  of  his  own  capital,  but  . 
part  also,  or  even  the  whole,  of  tl'e  money  deposited  with  him.  These 
unfortunately,  are  not  suppositions  and  possibilities  onlvj  they  have  be- 
come in  not  a  few  instances  very  exasperating  facts;  casing  distress  in 
thousands  of  households,  and  embarrassment  to  men  in  business.  Suc- 
cess then,  to  the  banker  is  primarily  wh-  it  is  to  the  merchant,  vi..,  that 
be  should  contmue  to  fulfil  his  functi,  ad  meet  hi.  daily  obligations  to 
the  end,  prcservmg  h.s  own  capital  in.  .,  to  say  the  least,  but  adding  to 
It  trom  time  to  time  in  prosperous  seasons  until  he  accumulates  a  re- 
serve fund  to  provide  for  contingencies.  For,  as  a  merchant  desire,  to 
increase  hi.  capital  until  it  amounts  to  a  competence,  so  a  banker,  with 
equal  propriety,  desires  to  aeenmulate  such  a  surplus,  after  a  reasonable 
distribution  of  profits,  as  will  amount  to  a  reserve  sufficient  to  render  im- 
pairment of  his  capital  impossible.  But  to  attain  this  he  must  be  thor- 
oughly „u  fad  in  the  art  of  lending  money  and  avoiding  lo.se5.  \  sum- 
ming up  of  what  the  banker  should  be  himself  may  be  indicated  as  fol- 
lows : 

(1)  A  successful  banker,  like  a  successful  merchant,  must  not  only 
understand  the  theory  and  practice  of  his  business  and  the  law.  with 
which  it  IS  carried  on,  but  must,  a.  a  rule,  have  gone  through  such  a  pre- 
paratory training  in  the  office  as  will  enable  him  to  .ee  that  every  part  of 
11  1.  earned  on  with  economy  and  efficiency. 

(2)  He  mu.1:  possess  a  sound  judgment,  and  be  able  to  discern  be- 
tween good  loans  and  bad,  desirable  account,  and  unde.ir.ble,  and  have 
such  a  knowledge  of  human  nature  as  will  enable  him  to  know  whom  to 
trust  and  whom  to  avoid. 

W  He  must  possess,  and  keep  himself  possessed,  of  a  good  stock  of 
Information,  well-sifted,  and  kept  up-to-date. 


4  I 


80 


BANKING   AND    COMMERCE. 


(4)  To  rnnblc  liini  to  make  a  right  use  of  the  qualities,  he  mult 
hare  a  well-balanced  cliaracter,  vix.,  a  due  combination  of  caution  and 
enterprise,  and  neHhcr  of  tlicm  in  undue  measure.  Excess  of  caution 
will  prevent  him  from  taking  up  accounts  and  transactions  that  are  safe^ 
for  to  the  over-cautious  man  risks  loom  up  in  unreasonable  proportions. 

On  the  other  hand,  if  a  banker  has  an  excess  of  enterprise  he  will 
take  up  accounts  that  arc  undesirable,  enter  upon  lines  of  operation  that 
will  result  in  lock-ups  or  losses;  and  so  conduct  his  business  with  regard 
to  reserves  as  to  endanger  the  bank's  very  exist*  nee.  The  over-cautious 
banker  may  lose  oppc/tunities  of  business,  but  tlie  interest  of  depositors 
and  stockholders  will  always  be  safe  in  his  hands.  The  ovcr-enterpristng 
banker  will  always  have  a  tendency  to  enlarge  his  business  beyond  safe 
bounds,  and  possibly  place  himself  in  the  position  of  being  compelled  in 
a  time  of  pressure  to  ask  assistance  from  his  more  prudent  neighbors. 

(3)  The  banker  should  have  firmness  and  strength  of  character,  com- 
bined with  ^>od  will  and  courtesy. 

Of  these  the  first  are  by  far  the  more  important.  While  a  banker,  in 
his  intercourse  with  men,  is  bound,  like  other  men,  to  be  courteous,  he  has 
to  beware  of  being  what  is  generally  known  as  "a  good-natured  man." 
For  a  man  whose  predominant  trait  is  good  nature  and  benevolence  runs 
r^rcnt  risk  of  becoming  the  prey  of  schemers  or  enthusiasts.  If  he  is  a 
banker  on  his  own  account,  he  will  almost  '-ertainly  ruin  himself.  If 
he  is  an  officer  in  charge  of  the  general  bu.  iness  of  a  corporation,  he  will 
almost  certainly  bring  it  into  embarrassment. 

On  the  front  page  of  the  New  York  Bankeri'  Magazine  there  used 
to  appear  the  following  motto:  "Favor  and  b'lteijLnce  are  not  attributet 
of  tound  banking.  Strict  juatice  and  the  fulfiltment  of  contracts  are  its 
essential  elements."     This  witness  is  true. 

It  is  the  commonest  of  truisms  that  a  banker  must  be  able  to  say  no, 
aad  stick  to  it;  but,  on  the  other  hand,  a  banker  who  is  always  saying  no 
will  drive  away  good  business.  If  a  banker  gets  a  reputation  for  being 
crusty  and  sour-tempered,  people  who  have  desirable  business  to  offer 
will  avoid  him.  Such  a  reputation  will  not  drive  away  men  of  the  unde- 
sirable sort;  for,  as  a  rule,  they  care  nothing  about  the  reception  they  get, 
if  they  can  only  get  the  money.  But  men  of  standing  and  position,  who 
know  that  what  they  propose  is  reasonable,  will  not  put  up  with  surly 
criticisms. 

The  old  Latin  motto,  Suaviter  in  tnodo,  fortiter  in  re,  exactly  ex- 
presses the  combination  of  temper  needful  to  a  banker.  Courteoua  in 
manner,  he  will  give  even  a  negative  answer  without  giving  offence;  firm 
in  his  position,  he  will  maintain  it  in  spite  of  all  the  importunities  of  cus- 
tomers if  -yhifit  is  usked  is  undesirable. 

(6)  A  banker  should  have  a  shrewd  judgment  as  to  subordinates. 
Men  have  various  capacities;  and  to  know  how  to  put  "the  right  man  in 
the  right  place"  is  all-important.  Especially  is  this  the  case  under  a 
banking  system  like  that  of  Canada,  where  branches  are  put  under  charge 


ELEMEXTS    OF   SUCCESSFUL    BANKING.  81 

of  men  wlio  exercise  almost  nil  ti.e  powers  Biven  to  the  eor|iornlion.  On 
the  exercise  of  n  sound  judimient  in  tliis  respect,  a  Inrjje  pnrt  of  tlie  suc- 
cess of  a  joint-stnelc  bank  with  kranclirs  depends. 

FinaU.T,  it  sliould  be  said,  tliat  a  banker  especiallv  in  the  highest  |iost. 
needs  to  be  a  man  of  eonsider.ihle  "nerie."  There  alwojs  have  oreurred, 
at  times,  and  always  will  occur,  crises,  times  of  difficulty.' (iiiergencies  that 
could  not  be  foreseen,  ai.d  sometimes  startling  events  that  com;  like  "a 
bolt  out  of  a  clear  sky,"  sufficient  to  try  the  nerves  of  the  strongest  man. 

A  great  bank  suspends  payment:  cniifidenee  in  all  banks  is  shaken,  de- 
positors and  riotehold.  rs  crowd  ri.iind  the  counter  all  day  long,  and  for 
days  together.  In  these  eircumstances  a  banker  needs  to  kie)]  Ills  head 
cool,  and  will  not  only  avoid  yielding  to  panic  himself,  but  will  be  a  cen- 
tre of  strength  and  contidenee  to  others. 

Two  inslanei's  of  this  kind  of  courage  and  coolness  mav  be  given. 

On  the  occasion  of  the  failure  of  the  Commercial  Bank  of  Canada, 
some  thirty  years  ago.  a  panic  seized  upon  the  public  of  Toronto,  and  a 
severe  run  set  in  on  the  banks  having  their  head  offices  in  Ontario.  Their 
counters  were  crowded  with  an  excited  nmllitude  for  several  days,  and  one 
of  the  banks  bad  to  be  supplied  with  gold  by  its  strong  neighbors.  There 
was  excitement  in  Montreal,  too,  and  on  the  third  day  a  telegram  was 
received  from  a  well-known  public  man  there  stating  it  as  the  opinion 
of  some  prominent  financiers  that  a  general  suspension  of  specie  pay- 
ments by  the  Western  banks  should  take  place.  This  advice  was  under 
consideration  by  bank  presidents  and  directors  in  Tormito.  ami  some 
were  so  alarmed  that  they  recommended  its  acceptance.  But  the  Cashier 
of  one  of  the  banks,  a  young  man,  strenuously  opposed  such  a  humiliating 
course,  and  declared  '.hat  so  far  as  his  bank  was  concerned,  bis  advice 
would  be  to  stand  out  to  the  la.st  dollar.  This  counsel  jircvailed,  and  the 
banks  were  saved  from  a  step  which  would  have  damaged  their  credit  be- 
yond recall.  Shortly  afterwards,  a  step  was  taken  by  the  Government 
which  stopped  the  panic. 

The  other  case  was  that  memorable  action  of  the  Governor  of  the 
Bank  of  England  on  the  occasion  of  the  >r:sis  which  had  overtaken  the 
great  firm  of  Baring  Brothers.  This  is  referred  to  elsewhere,  but  mav  be 
briefly  noticed  here.  Had  that  bouse  suspended,  some  eighty  million 
dollars  of  bills  would  have  gone  to  protest,  followed  by  an  incalculable 
number  of  failures  in  all  parts  of  the  world.  The  prospect  of  a  world- 
wide financial  panic  was  sufficient  to  shake  the  strongest  nerves.  But  the 
Oovernor  of  the  Bank  was  equal  to  the  occasion.  He  clearly  perceived  it 
was  a  case  for  the  co-operation  of  the  whole  hanking  interest  of  the 
United  Kingdom,  and  called  on  every  bank  of  importance  to  join  in  tak- 
ing the  risk  of  paying  this  enormous  amount  of  bills  on  the  security  of 
the  assets  of  the  boose.  The  call  was  responded  to  at  once.  The  risk 
was  divided  amongst  the  banks  without  difficulty;  whereupon  the  Bank 
of  England  made  it  known  that  arrangements  were  made  to  pay  the  bills, 
and  the  whole  finanuial  world  in  every  quarter  of  the  globe  breathed  a 
•igh  of  relief.    The  courage  and  coolness  of  one  man  saved  the  situation. 


11  ly 

''. 
,'i 

;l" 


CHAPTEH  XIII. 

THE  BANKERS  INFORMATION  AND  OTHER  ELEMENTS  OF 
BUOCESS. 

iNroHMATlo.v    Xeces.ahv    T(.    Slcci;.«fii.    Bankixo— Chauicteh    and 

CaPACITV  of  BoRROWEBS— FaIMHES  IN  BlUlNEM— AmOINT  OP  CAP- 
ITAL—FaSIILIAHITY  WITH  Banking  Lavi«— Deaiino  «nii  Embar- 
rassed BoRHOHEBs— Knowledge  ov  SEriRiTv  V'AtiEs— Cheuits— 
Mercanhle  Agenhies — ExniANoiNG  Information. 

'  I  'HOUGH  n  bnnkcr  lias  promdrd  so  fur  .is  lo  have  iidequatr  rnpital, 
i      line  aulhorUnlioD,  suitable  correspondeiils,  and  well-equipped  office 
and  staff,  he  will  find  himself  utterly  unable  to  proceed  in  the  way 
of  making  profit,  without  an  adequate  stock  of  information. 

If  a  young  banker  has  passed  through  the  grades  of  a  banking  office, 
and  acquired  proficiency  in  counting  money,  keeping  books  and  handling 
securities,  he  may  fancy  lie  is  well  equiri>ed  for  business,  but  this  is  only 
one-half  of  a  banker's  business,  and  by  far  the  easiest  half.  It  is  when 
persons  come  with  proposals  for  Loam,  or  for  the  Ditcount  of  business 
bills,  that  the  banker  finds  the  necessity  of  another  sort  of  stock  than 
money;  .ind  another  sort  of  capacity  than  handling  it. 

A  iierson,  for  example,  eomes  into  the  office,  with  a  proposal  for  a 
loan.  The  banker  has  funds,  and  he  would  be  glad  to  employ  them.  But 
he  is  at  once  confronted  with  the  question,  who  and  what  is  the  person 
proposing  to  borrow.'  Who  and  what  is  his  proposed  endorser?  What  il 
the  real  value  of  the  security  he  offers? 

The  primitive  banker,  sketched  in  the  beginning  of  this  tre,  iise,  ■ 
wealthy  and  successful  man  of  business  md  long  esUblished  in  the  com- 
munity, knows  everybody  in  it,  and  haa  already  this  valuable  stock  of 
information  at  command.  He  can  proceed  safely  enough  in  the  busineu 
of  lending.  But  woe  to  the  unfortunate  banker  who  would  attempt  to 
do  a  loaning  business  without  information. 

Information,  then,  being  essential  to  successful  banking,  and  to  suc- 
cessful trading,  too  (for  Kinking  and  commerce  in  this  respect  are  close- 
ly connected),  it  is  proposed,  at  this  time,  to  enter  more  fully  than  here- 
tofore  into  a  consideration  of  the  whole  subject. 

There  are  four  gener.il  heads  under  which  may  be  gr  'ped  all  the 
information  a  banker  needs  as  to  the  periom  who  propose  to  negotiate 
loans  or  discounts  with  him;  viz. — 

1st.  Antecedents. 

2d.  Character. 

Sd.  Means. 

4th.  Experience. 


THE    BAXKEHS    IXKOHMATIOX. 


03 

.nd!lt  „°fM'"'  °'""': ,'"'"'«  "'■  <<"■'>"<<•'>■"'•>  |...„li„rHi..,  of  i,.  „.„, 

■nd  ewll  of  ll„.„,  r.iiinfi, »  into  ,„„„i.,„„,  ,„„tiiiilnr. 

For  ,x.u>,|,l,-    will,  r,,|,...l  to  ..|,ara.t.T   (for  II,..  „|«v,.  n,,,!  „ot  I,, 
upnghm..  .;  ,|,„    „    „,„,  „  ,„„„  ^„„  ^^  ^              ,                             .         I 
prom,.e,.  to  ,,„.„k  tl„.  tn,(l,  „,„|  ntt..,„|,t  n„tl,i„g  „„f„i,.         '     ' 
of  A"  r"  *''ir""-''  "''l'"''i"''''  »«  i'  »l"'"l<l  I'.-.  tl,at  all  tl, „„ 

o,tViir:r:r„''"'H''°'"'i""'''"''  ""■  ""'p"--  "•■  -""■■-  "-'- 

loan,  r., I  .,,„  tl„.  contra.t,  ooolafm.l  i„  ,l,.l«.„t„r,.,.  ,,„.  „„,|,i„„  ,„„ 
prom,.,,  ,„  writing     Th.y  all  d,p,nd   for  thdr  value  „„   ,|,/ ^  Ja,' 

!..».  I,,l  ll„y  w„„l,l  |„„.  „||  negotiable  val,,,:  u„|e„  tl,ev  eoul.l  l,e  ,le- 
u-nd.^  upon  ,„l,.„,t  ,„„^  n  i,  „n,.  of  ,|,e  ,„ar,el,  „f  ,;„dern  1,  nl.  „ 
that  «>   „,any   „„ll,„„,   of  „„el,   eon»i,t   ,i,„p|.v   of   ..i.e,,   of   paper   „„ 

."  ™ '»';„w"i"'t?'  '""■■' '  rr '"  ""■'•  *" '  -'" '- "-«'  ""-'"'•"" 

a  lie  a,  the  hond,  „,  g„  ernn,ent,,  or  other  eorpora.ion,,  are  nothing  b,„ 
pron,,e,  ,„,,„,.  eerta.n  ,„„„ey,  after  a  ter.n  of  year,,  whiel.  pro,„i,e, 
may  be  kept  or  broken  „,  eircnnstanees  develop.     Sueh  pr„,nij,  to  thl 

please  „),  and  bondholder,,  on  endeavoring  to  enforee  perfo™,anec  by 
law    have    epeatedly  found  lhe,n,elve»  baHled  and  disappointed. 

Certainly  of  perfomianee,  therefore,  i,  the  foundation  of  all  dealing 
m  pron.„e„  and  ,1  „  only  when  a  high  degree  of  -eliabili.v  i,  re.acl.ed 

.ucZ'.°"' "'       "'""°"" "'" "  ''"■"'"  '-■  ""'y ""  '^'■-"»  »"h 

to  nl  """'''"'■■  "'  ,'°  ""'""■■""  "  ■'■"'-'  -  ""Portant  a,  reliability  a, 
to  pro„,„e,;  ,na„„„eh  a,  a  banker',  bnsine,,  i,  largely  founded  on"  the 
repre.e„,„,„,„.  n.ade  to  hi,,,  by  hi,  eu,to„,er,.  The^  „e  degre  ,  ."  r  ! 
l.ab.l.ty  ,n  ,„en.  One  Mill  „,ake  .nisrepresentation,,  deliberately,  from 
..n,erup„lo,,,ne„,  another  fro,„  a  ,„„g„ine  ien.pera.uent.  and  the,    7Z 

fal  e  though  ,t  „  rare  for  men  to  go  so  far,  „nle„  in  an  extremity, 
O  he  (or  the  same  man  „,  other  time,)  will  eolor  representation,,  l 
m,n,.h,„g  ,„,„e  tl„„g,,  „„rf  exaggerating  other,,  makiig  the  favorable 
po,n  ,  too  prominent  and  ke.ping  baek  those  that  are  u'nfavora  ,le    the 

hood  has  been  spoken.     Beyond  all  this  lie,  the  terrible  region  of  fraud 

TllT'-'  "  ;  "  ''"""""  '■""'"  P"""'"-'  '"  P"-"  for  liseount,  of 
wh,eh  the  ,up,H>,ed  pro,„i,er  never  existed,  or,  •'  he  exists,  that  he  n^ver 

A  |.r<,l™ted  bin  I.  nothing  but  i  broken  ^oml..  v"?"*'""  J"""'"  '"  EnrlanJ. 
ba.ln«»  In  Eniland  Ha. e  .o,eldom  baa  ME^;„r', 'i""l '""''"  "»'"«  «  '"*• 
.ue-  .  „„,  „e„  „  did  happ^i-r  ti'lir.',  ^ 'dV.lSoi'S' aXJeT"   ""°" 


BANKING    AND    COMMEnCE. 


Wlu-ii  n  iiinii  liim  gwnv  no  I'nr  nn  tliix,  hr  hns  put  i)iii))ti>lf  nut  of  tlie 
pnit'  of  Ixink  dcnlingN.    His  proper  plnrc  ii  in  the  rriminnl  dork. 

Vabyino  Drorees  or  Reliabilitv  and  Capa(itv. 

'lut  npart  from  such  a  cn»c  ns  tliit — iK-twri-n  the  mnii  of  alisolutr  lion- 
rsty  wlio  can  W  relied  upon  to  prrforni  liin  proniiae.  no  ninttrr  wh.it  it 
tuny  rofit  hhn.  mid  tlir  tix-n  wlioir  word  rniiitot  1m'  relii-d  uiKtn  nt  all, 
tlirre  (irc  ninny  drgrtes  of  reliableneu.  Men  there  are  who  on  all  ordl- 
niiry  ocennionit  tell  ^hr  truth,  but  whoir  moral  courage  I'niU  them  in  an 
eiuergetiry.  There  are  nthrrit  who  have  a  character  for  nmkiiig  uiisstate- 
tneiits  to  their  nrighhors.  who  never  try  to  deceive  their  hanker.  The 
hanker  learns  hy  i  xperience  how  to  balance  conflicting  re|Mirt!i.  lie  will 
note  whether  statruients  may  In-  made  from  per^oiiitl  prejudire,  trade 
rivalry,  or  )tolitieal  nnlngonism.  p'qually  will  he  guani  againtit  being 
niish  '  liy  stateiiuntft  of  ;i  f.-ivorabic  nature  tliat  cireumstauces  do  not  jus- 
tift ;  rnr  this  in  llie  more  dangeroufi  of  the  two.  The  one  wmild  lead  to 
htss  of  business,  wliereas  the  other  would  lead  to  a  htss  of  money.  And, 
as  Mr.  (iilbart  lias  well  observed  in  his  Treatise  on  Hanking,  when  j 
banker  has  a  written  re)>ort  on  a  customer  lieforc  him,  he  will  note  af 
nmch  what  is  omitted,  as  what  in  said.  A  man  may  he  eminently  honest 
and  truthful,  yet  it  might  he  very  undesirable  to  lend  him  money.  There 
are  honest  simpletonii  and  truthftd  visionaries. 

There  are  men  who  m-IuIc  scrupulously  careful  as  to  prrf'onnitii^  prom- 
ises, are  raNli  and  sanguine  in  making  them. 

There  .Tre  men  who  enter  upon  business  operations  who  arc  forc- 
dotimed  lo  failure  from  the  outset.  A  hanker,  therefore,  in  the  course 
of  liiH  loaning  operation?),  must  direct  his  attention  not  only  to  honesty  but 
to  capacii't. 

This  (piality.  like  honesty,  has  many  degrees  and  varieties.  It  is  a 
composite  nualily.  made  up  of  various  elements  which  are  to  Ik-  found  in 
various  combinations  in  ditTerent  individuals. 

Some  of  these  arc  essential,  such  as  gimd  judgment^  and  common 
sense,  together  «'ith  a  due  combination  of  caution  and  courage;  not  an 
over-developed  cautiousness,  for  in  this  case  he  would  be  afraid  to  run 
rensonable  risks,  nor  an  overweening  courage,  for  in  that  case  he  will 
venture  into  rash  operations.  Capacity  such  as  will  make  a  man  a  desir- 
able lM»rrower  is  a  sum  of  desirable  qualities  well  and  reasonably  com- 
bined. For  example,  no  man  can  be  a  desirable  borrower  from  a  bank 
who  is  not  abV  to  put  forth  strenuous  exertions  in  emergencies;  foi  such 
contingencies  occur  in  every  business;  and  if  he  cannot  meet  them  he  will 
be  overthrown. 

If  a  man  is  given  to  pleasure,  and  spends  too  much  time  in  the  enjoy- 
ments of  the  table,  especially  in  drinking,  he  will  prove  to  be  a  very  un- 
desirable customer  for  the  banker.  It  need  scarcely  Ix"  said,  except  as 
a  passing  allusion,  that  all  vicious  pleasures  must  l>e  shunned  by  every 


THE    BANKERS    INFORMATION.  «, 

zi :!::w::Jz!. ^''"'""-  '*""'"•'" "■■■- '-""-^ "-' '"'■ 

A  bn.,k,.,  t|„.„   1,„.  ,1,  „„  ,o,rg„i„g  ,,.,|„,,  ,„  ,„„.i,,„,  i„  „,^|,     , 
who  I.  ™,,.,l,lo  nnd  ,«..,„,„io„|,  if  |,,  ,.  „„,  ,,„„,„,     „,    h„„,rt  """ 

lircuMr,  111  t,.,ki-  llif  loroijoing  |..iinl.  into  »coount. 

n,i-  »,./f,Wf«(.  of  „  m,„  „e  g,-ner»lly  more  .„„■  (o  „,„,..,,„  Ih,„ 

borho<.i.     Wl,r„     ,o«rvor,  „  con.id.r.ble  p.rt  of  r.  per-o,,-.  o»rr.r  L 

.f"  ''T  '"  "  ''"'""'  '"""'''•'■•  "  '■  """•"'""■•  "i*"""  ">  """.  at  th" 
irull,.     K„q,„r„..  „.  ,„  „„,e,ede„t,  obviou.ly  g,thrr  .b„„l  „,  l„d- 

r/err  '•■,  I  "  n'l  ■";  ''''^"'"  '"  ""'  "'  ••"•  ""'  •»•-  •"«"-"?  H" 
U  a   .  till  ;    '"'  '""•■''•  "'"  '■"■''■'  «'•"  -"-».t.n«..>     W. 

hoM  Tl,  "■■""     ''^■P"-"'""'  «'>™  "«  '^""Xft  fir-,.  co„ld  «.„rcely 

hold  their  own,  or  w...  it  when  affair.  In  the  commereial  world  werrw^2 
mg  .mooth ly?  And  what  wa.  the  r„,„„  of  hi.  failure?  wji  ineot 
pet  nev,  idlene..  o.   extravagance?     I,id  he  over-trade  or  .pec,  la"e  T, 

ng  Ha.  he  fooli.h  in  crediting,  and  did  he  let  every  .l.iftle,,  feMow 
in  the  e„„,„,„„i,y  tak.  advantage  of  bin,?     Wa,  he  lining  in  ^  «„    I 

whrr  ^?.'°?  *"r  "  ■'"'*•  •""•"■•  '""■""«  -  t.'^ing  p,opert; 
when  he  ought  to  have  kept  the  money  in  the  b,„ine,.?  P™dent  bank™ 
W.II  endeavor  to  ascertain  in  addition  whether  he  got  a  .ettlemc"  and 
how  he  got  it.  Also  what  did  hi,  creditor,  think  of  S;  opecianvThA  did 
h..  anker  think?  Part  .,r.v,  wa.  there  any  .n.pi;ionT  Li^ al^  1 
b..  fadnre   or  any  attempt  .o  take  advantage  of  the  ...y  p^vWorof 

bein;trrer.n"lr  """'^  "'  ^"'"'"«  ''-"'  »'  '^  -"-■ 
Ihi,  kind  tr  "'f  "1"^  T  ''™""  ""  ''*"'  '■""'«''  '"  '"q-i'i"  of 
faded  nnder  any  e,rcum.tance..  I,  .„„«,  perhap.,  work  to  hi.  di.adv.1 
Uge  at  t,n,e,,  for  a  man  who  had  learned  le„on.  from  experience  m^ 
be  condnefng  a  v  -ndenl  and  pr„,pero,„  bnaine...  But  it  i.'ee^  n  Z' 
one  who  ha,  fa.k  i.  apt  to  fail  a  ,eeond  time.  When  time,  of  difficnl'y 
oome,  a  per.on  who  ha,  once  failed,  i,  .trongly  t  .pted  to  give  up  the 
struggle  even  when  really  .olvent.  K"<:  "F  me 

A  banker  may  aI,o  re.,onably  enquire  whether  the  man  ha,  had  fair 
"ere.,  ,n  bu,ine„,  whether  he  "got  on"  a.  the  phr.,e  i,.  One  who  h.^ 
barely  kept  hi,  head  aWe  w.ter  may  .ometime,  p.-ove  an  ™d«irab" 

cn»,e,,  and  yet  have  pa.d  hi.  way,  and  maintained  an  honorable  repula- 
t,o„.  Such  men  although  they  do  nrt  accumulate  money,  are,  .ometime. 
the  very    ,.  1.  „f  the  earth,"  and  among  the  ,.fe.t  of  a  banker-   cu.tl™ 


i:ii 

.!»« 


8G 


BAXKIXG    AND    COMMERCE. 


Amoi-n't  or  Mcwf  oh  Capital. 

The  tliird  mnttrr  riniHctitifi  wtii<>li  iiil'oniintion  Hill  nntnrnlly  be 
Kitigllt  is  n>  to  n  pro|K>twil  rii: 'oinrr'i  iiHnti«,  or  i-apital.  Soint'  iiH-n  who 
Irnd  nmiii-y  would  •my  tliat  tliiit  !■  tlir  only  llihi|{  worth  enquiring  nboiit. 
Without  fioiiift  HO  fnr  at*  this,  cointiiun  pru<lrnci>  luggmti  thnt  a  ninn'i 
rapitnl  is  ji  tnultcr  of  thr  first  iin|H>rtnn«-i'.  Vt-t  it  is  i-xtrt-nit-ly  iliHi^'ult  to 
get  ncTurnti'  infonnntimi  nliout  it.  Men  fllinost  inv/irinMy  roniidt-r  thi'tn- 
at-lvcit  worth  more  thnn  thvy  rcnily  nrr.  hcnri'  it  is  iicci'iiiary  to  criticisr 
nil  dtntrtnrntii  of  nssits  with  n  view  to  rorrrrtinf{  fivcr-vniiintions.  But 
ilitTf  fire  nun  in  hiiNiKt'ss  and  dftirinft  to  Im-  ciistouiiTS  ol'  Imnks,  too,  who 
never  make  out  n  LalnnrL -sht et  at  nil.  contenting  themselves  with  mere 
lists  of  nrcnunts  due  to  tht-ni.  and  now  nnd  then  estitiiating  the  vnlue  of 
their  stoek  hy  giirsBWor». 

If  they  own  renl  (iroiM-rty.  they  generally  consider  it  worth  its  cost. 
Of  lifibilitiefl  lliey  rarely  keep  nn  accurate  account,  except  |M>ssibIy  of 
notes  they  hive  signed.  Thu«,  judging  Intth  their  assets  and  HnbiliticH 
by  guet«!twork.  they  estimate  their  means  by  guesuwork  too;  guessing  them- 
»elvi4  to  l>e  worth  one  or  lore  thousands  of  dollars,  they  claim  credit 
acco  'dingly. 

But  a  hanker  would  be  simple,  indeed,  who  woult^  lie  satisfied  with 
this.  He  will  ask  for  wlmt  is  generally  called  n  "statement,"  which 
statement,  for  obvious  realms,  should  l>e  in  writing.  Yet  a  prudent 
banker  will  rarely  act  upon  a  written  statement  without  a  convenatiun 
with  the  party  who  has  submitted  it.  Siieli  conversation  will  often  bring 
out  i>oints  that  a  bare  statement  leaves  unrevealed,  and  will  prove,  if 
carried  out  judieionsly.  of  great  value  to  the  party  concerned,  as  enabling 
him  to  understand  his  real  position.  Moreover,  in  many  coses,  this  will 
afford  a  fair  index  to  the  borrower's  habit  of  mind,  and  show  how  far  he 
is  to  be  trusted  in  any  future  representations  he  may  niake."'^ 

With  regard  to  the  Experience  a  proposed  borrower  has  had  in  the 
business  be  is  carrying  on,  it  is  a  comparatively  simple  matter  to  ascertain 
it.  If  he  has  always  carried  on  business  in  the  same  town  or  neighbor- 
Itood  his  experience  will  be  a  matter  of  notoriety. 

If  it  has  been  gained  in  some  distant  place  the  inforraat.on  received 
as  to  antecedents  will  cover  the  point. 

But  now  supiwsing  thnt  the  banker  has  acquired  a  sufficient  stock  of 
information  to  justify  him  in  commencing  to  deal  with  borrowers,  he 
must  mt  imagine  that  he  is  exempt  from  the  trouble  of  making  future 
enquiries.  Changes  are  constantly  taking  place,  and  it  is  lecessary  for  a 
banker  to  keep  his  information  abreast  of  the  times.  Last  year's  reports 
ore  not  a  safe  foundation  for  this  year's  business. 

Premonitory  symptoms  of  coming  trouble  are  of  the  first  importance 

85  Th«TP  l8.  however,  a  mode  of  Riving  Infnrmnttnn  which  may  be  more  valu- 
able evei:  than  a  written  statfment.  When  n  merchant  IIvpr  In  a  distant  town 
and  his  banker  casually  calls  upon  him,  the  merrhtint  mny  then  take  him  Into 
his  iifTiif  uiid  ui>fii  llie  private  Ivdgft'  contuiniriK  tiiti  lust  atiK-k-taking  iind  Btat<^- 
ment  of  profit  and  loss.  It  la  Impossible  for  this  to  have  been  made  up  for  the 
occasion,  and  the  very  act  of  doing  so  will  tend  to  Inspire  confidence. 


THE    BAXKF.HS    IXFOHMATIOX. 


•r 

m'-kV:  ,r":ir" ':r„"°"- "-  :•-"  "•"-"""  --''"•'.v  i:r.t 

Thi.i!         ■     ,'""'  "-ncuurAu     ,    In,   ni.tomtri   to   gouip   to   l,i„ 
In   ..rking   inf,„„„.li„„   „   |,„„|.,,  .i,,   ,„. 

for  wl..t  I.  c»llrd  ,,„„g,     l„.  will  1„.  „v,ml,.,|.     Tl,..  ti„,.-  „C   „.,„„. 

le  c,„.o„,..r.  ,.  proUhlv  ,.  v„l,„.,,|,.  „.  ,„.  „„„,  „„.,  .,,„„  „„.  .      ;'  ^ 

ben-'il  to  lilm  who  ini|uirt<  it. 
a  m«n  o(  l|,„  i-l,,,,  „  i„val„ahle  to  n  hank.r. 

wi.h'Lir.t'''' '"  '"■  """""•" ' "•"■  *'"""'"^-  '^'"■-'••' "  "•■»'« 

Tlure  are,  however,  other  thing,  thai  claim  the  att:  :  ,  of  a  baoker 
Ihe  fir,t  „f  the.e  »  a  knowledge  of  the  law.  under  which  he  doc.  bu.1- 
to  .|0.nt..t«.k  ba„k,og  in  Canada  and  the  United  State..     A,  bv  far  thf 

.Will  Ke  ^'  ^"''""'  •"  ""■  ""■""•'•  "  """d  -"  under- th„  law 

iTl^.'""        ,  ^"'  »/'"""»"  '>»"'■"  "•"  become  familiar  with  uT 

lender. nd.r''"'     :';■''■''  "'""■  '-'■"""  '"  •"'  f""-^"™  "   "  "-ney! 
lender  and  the  .ecnnt.e,  he  can  lake  therefor.     He  will  learn  from  thence 

wM  T,"  '°  ''°'  ""''  "'""  •"■  '"  P™'"'""-''  f™»  iolng,  what  "" 

h.  power,  and  tailalion,  regarding  red  date  and  fi.ed  properlv,  .1,„ 

Wm  L  ini  ""  ^T,:  "■?'  "  ""'  ^"'"^  P^'i-^'ll.v  in>po..ible  for 
h.m  to  incr  any  of  the  penaltie.  provided  for  violating  them 

BMides  thi.  special  knowledge  of  the  banking  law,  a  banker  will  need 
.  general  acquamlance  with  the  law  of  bti!.  of  exchange,  and  pr„mi..ory 
note,;  what  co„,t,.„te,  their  validity,  and  negotiability,  .!«,  recLrae  npon 

2tZ"lr  f  """'"""'  «■""■"»'"».  """(r'ge'  on   real  e,t.te, 

chattel  mortgage,,  how  lo  proceed  to  enforcen,e„t,  and  other  mutter,  re- 
M,ng  to  .ecnnhc..  A  banker  need  not  be  .  lawyer  to  have  .uch  knowl- 
edge  of  the.e  thmg,  a.  ..  neccMary  to  conduct  hi,  daily  bu.ine,.,  and 


88 


BANKING   AND   COMMERCE. 


give  instructions  to  his  clerks.  There  will,  however,  arise  at  times  que»- 
lions  regarding  particular  points  of  procedure  respecting  which  he  would 
do  well  to  consult  his  lawyer.  Bui,  as  he  proceeds,  a  banker  will  grad- 
ually become  as  familiar  with  what  he  has  power  to  do  and  what  he  has 
not  ns  a  merchant  is  with  the  tariff. 

With  regard  to  cash  reservus  and  investments  a  banker  should  not 
only  understand  what  is  the  proper  proportion  to  be  observed,  but  be 
possessed  of  sufficient  skill  and  firmness  to  guide  his  discounting  opera- 
tions so  as  to  maintain  them. 

An  important  qualification  of  a  successful  banker  is  the  faculty  of 
dealing  with  customers  who  fall  into  embarrassment,  and  of  realizing 
securities  to  tlie  best  advan'  gr.  In  spite  of  all  a  banker's  caution  he  will 
find  himself  rompell'  d  at  times  to  deal  with  embarrassed  customers  (em- 
barrassed through  no  fault  of  his),  and  compelled  also,  much  as  he  may 
dislike  it,  to  devote  time  und  skill  to  the  working  out  of  Insolvent  Estates. 
Times  of  difficulty  recur  periodically  in  the  commercial  world,  when  in- 
solvencies rise  far  beyond  the  usual  average.  It  is  in  these  difficult  times 
that  a  banker's  judgment  and  skill  are  severely  tried:  not  only  in  making 
the  best  of  securities,  but  in  considering  that  most  difficult  question,  Shall 
he  support  his  customer,  and  nurse  him  into  a  safe  position,  or  shall  he 
refuse  further  advances  and  let  matters  take  their  course.'  Which  of 
these  lines  to  take  is  generally  a  perplexing  question  to  answer.  Either 
of  them  may  lead  to  loss,  if  a  mistake  is  made.  The  customer's  businetf 
may  be  too  deeply  embarrassed  lo  permit  of  its  recovery;  in  that  case 
udditional  advances  will  only  lead  to  additional  loss.  On  the  other  hand, 
if  it  is  not  too  far  gone,  a  little  timely  help  may  tide  a  worthy  and  capable 
man  over  temporary  difficulty  and  preserve  him  as  a  good  customer  to  a 
future  time. 

To  refuse  help  altogether,  would  lead  to  certain  loss.  There  is  thus 
the  alternative  of  certain  loss  on  the  one  hand,  of  possible  avoidance  of 
loss  on  the  other,  with  the  other  alternative  that  the  help  may  prove  in- 
sufficient, and  the  loss  be  increased.  The  only  safe  course  to  follow  in 
such  cases  is  this:  if  the  party  is  honest  and  has  the  capacity  to  succeed 
if  help  is  rendered — then  care  should  be  taken  to  ascertain,  by  the  bank- 
er's own  examination,  whether  the  party  is  really  solvent;  and,  next,  to 
require  such  additional  security  as  the  law  will  allow,  and  as  will  not 
prejudice  the  customer's  position.  If  the  debtor  is  thus  kept  on  his  feet, 
it  is  not  unreasonable  lo  require  that  the  banker  should  have  some  super- 
vision  over  the  business  until  such  lime  as  circumstances  prove  to  be  un- 
necessary. If  such  a  step  is  taken,  the  banker  will,  of  course,  carry  it 
out  prudently,  and  not  give  the  cusfomer  reason  to  complain  of  inquisi- 
torial prying,  or  of  unreasonable  interference  with  his  business. 

It  is,  at  all  events,  certain  that  this  course  has  been  more  than  once 
tried,  and  with  the  best  results. 

A  banker  will  not  have  proceeded  far  in  the  way  of  hia  discounting 
before  he  perceives  the  importance  not  only  of  information  respecting 
hU  immediate  customers  but  of  the  persons  with  whom  Ihev  deal.     He 


THE    BANKERS    INFORMATION.  g^ 

will  (ind  it  necessary  also  if  he  is  doing  business  in  a  city  to  Income  ae- 
qua.nled  witli  tlie  various  classes  of  ,ec«ri/ip,  that  are  olfVred  for  Loans 
or  which  it  may  be  desirable  to  purchase  for  investment.  It  will  be  well 
also  that  he  should  become  acquainted,  in  some  degree,  with  the  staple 
pnducU,  which,  under  our  banking  law  can  be  transferred  to  him  as 
security,  and  with  the  prices  current  from  time  to  time,  and  th.  condition 
ot  the  trade  in  general. 

A  banker  should  be  sufficiently  well  informed  to  be  able  to  advise  an 
importer,  let  us  say,  to  moderate  his  purchases,  giving  reasons  therefor- 
or  an  exporter  whether  to  warehouse  and  hold  for  a  time,  or  to  engage  all 
freight  possible  and  bring  his  goods  to  market.  This  by  no  mean,  implie. 
that  he  shall  acquire  such  technical  knowledge  as  would  enable  him  to 
either  buy  or  sell  the  commodities.  No  banker  could  pretend  with  any 
reason  lo  discuss  the  .|,iality  of  a  piece  of  cotton  goods  with  a  merchant 
or  to  criticise  the  working,  of  the  gang,  in  a  sawmill  with  the  owner. 
But  he  should  know  enough,  let  u,  say,  of  the  trade  of  a  wholesale  mer- 
eliant  to  judge  whether  he  was  carrying  a  reasonable  or  unreasonable 
amount  of  stock,  as  bearing  on  the  amount  of  the  credit  such  a  merchant 
might  apply  for.  Similarly,  with  regard  to  a  flour  mill,  a  banker  should 
be  well  enough  informed  about  the  business  lo  judge  whether  a  proposed 
credit  would  be  reasonable.  He  should  also  have  such  a  general  knowledge 
of  the  timber  business  in  its  financial  aspect,  as  would  enable  him  lo 
judge  whether  the  scale  of  his  customer's  operations  was  in  proportion 
to  hi,  capital,  and  whether  his  credit  was  being  used  economically.  He 
•honld  know  how  much  lumber  a  given  expenditure  ought  to  produce,  and 
be  able  to  judge  whether  the  business  was  well  managed  or  otherwise  bj 
the  working  of  his  customer's  bank  account. 

And  so  with  every  leading  line  of  business  in  which  his  customers  are 
engaged.  It  tends  to  establish  good  relations  between  the  banker  and  the 
merchant,  when  a  man  of  business  finds  his  banker  well  enough  informed 
to  be  able  to  discuss  the  financial  aspect,  of  his  business.  From  such  a 
banker  a  merchant  will  more  readily  take,  not  only  pertinent  hints  and 
ordmary  advice,  but  those  checks  and  refuses  which  at  times  are  nece«- 
sary  to  sound  banking. 

It  is  not  only,  however,  with  regard  lo  general  lines  of  credit  to  the 
customer  himself,  that  the  banker',  information  is  important,  but  also 
With  regard  to  the  credit  that  his  customer  give,  to  those  who  buy  from 
him.  A  banker  should  be  sulficiently  informed  to  be  able  to  saV  lo  s 
wholesale  merchant  who  offers  bills  for  discount,  "You  give  a  lar^  line 
of  credit  to  such  a  one.  Probably  you  suppose  you  have  his  whole  ac- 
count. But  I  may  tell  you  in  confidence  that  you  "have  not.  He  buys  the 
fame  kind  of  goods  to  my  knowledge,  from  another  house,  and  my  judg- 
ment is  that  both  of  you  are  giving  him  more  credit  than  li  desirable." 

A  merchant  would  be  foolish  indeed  who  did  not  take  such  a  hint  in 
good  part  and  profit  by  it. 

The  conversation  may  take  the  shape  of  a  criticism  of  the  standing  of 
a  wholewlc  house.     This  house  bu),  goods  from  a  manufacturer,  who  ii 


m\ 


90 


BANKING   AND    COMMERCE. 


wUe  enough  to  ponsult  hia  banker  about  credits.  It  would  rait  the  manu- 
facturer to  aell  the  merchant  a  larjter  line  of  goods,  but  he  does  not  know 
enough  about  him  to  take  the  risk.  Here  the  banker  may  feel  justified 
in  giving  his  manufacturing  customer  the  benefit  of  confidential  informa- 
tion. In  doing  this  he  will  consider  well  the  kind  of  man  to  whom  he  to 
speaking,  and  what  use  he  is  likely  to  make  of  the  opinion  expressed. 

ExpoHen  are  increasingly  in  the  habit  of  attaching  bills  of  lading 
to  the  bills  they  draw.  These  are  commonly  directed  to  be  held  until  the 
bill  of  exchange  is  faid.  But  there  are  exceptions.  It  is  in  regard  to 
these  that  a  banker's  information  might  be  all  important.  Some  mer- 
chants in  Great  Britain  will  not  accept  bills  at  all  unless  the  bills  of  lad- 
ing are  given  up;  or  they  may  require  that  bills  shall  be  surrendered  to  a 
certain  amount,  and  in  some  lines  of  export  business  it  is  not  customary 
to  attach  bills  of  lading  at  all.  In  such  cases  the  exporter  has  to  rely 
altogether  on  the  standing  of  the  foreign  house;  and  a  well-informed 
banker  can  render  his  customer  invaluable  service.  The  banker  may  pos- 
sibly express  his  opinion  rather  in  acts  than  in  words.  He  will  not  take 
the  bill  except  with  documento  attached;  or,  if  the  documents  are  attached, 
he  will  not  consent  to  their  being  surrendered  before  payment 

A  Canadian  banker  will  therefore  take  means  to  keep  his  information 
well  up  as  to  changes  in  foreign  firms. 

In  the  commercial  centres  of  Great  Britain  the  facilities  for  specula- 
tion are  so  multiplied  as  to  constitute  a  positive  temptation.  A  shipowner 
in  Liverpool  may  be  drawn  into  dabbling  in  cotton;  a  Glasgow  grain 
merchant  may  try  his  luck  with  iron.  As  to  London  the  opportunities 
for  speculation  are  infinite,  and  embrace  everything  going  on  in  the 
business  world. 

It  is  therefore  of  high  importance  to  an  exporter  and  a  banker  who 
deals  with  exporters  to  keep  his  information  up  to  date." 

Mkrcantile  AnRNClR^. 
Mercantile  agencies  have  been  so  remarkably  developed  during  the 
last  thirty  years  that  they  aje  indispensable  to  all  who  give  credit,  either 
in  the  shape  of  goods  or  money.  The  information  they  place  at  the  ser- 
vice of  their  clients  goes  much  beyond  mere  liooks  of  reference,  and  em- 
braces detailed  reports  covering  all  four  of  the  points  referred  to  in  an 
earlier  part  of  this  treatise. 

Such  reports,  too,  are  often  accompanied  by  balance-sheets,  so  that  a 
banker  has  furnished  to  him  what  are  practically  a  number  of  business 
histories  condensed  into  a  small  compass  and  so  methodically  arranged  as 
to  be  accessible  with  the  smallest  trouble."^ 

»«  8«  the  chapter  on  commercial  bills  arawn  In  eterllng  money. 

>T  The  records  hitherto  publlehed  by  one  or.-du  asencr  In  Great  Britain  are  of 
exceptional  value,  belnf  arranged  on  eclentlRc  principles,  and  enablina  every 
leadlnc  clrcumsunee  allectlnv  credit  to  be  taken  In  at  a  glance.  It  It  well  known 
In  banklns  circles  that  the  conductors  of  thia  agency  have  been  men  of  remarkable 
information  and  sound  judgment. 


THE    BANKERS    INFORSfATIOS.  gi 

A  banker,  however  « ill  find  ii  prudent  to  bring  a  eritieal  judgment  to 
bwr  on  sueh  reports,  for  a  nureanlilc  agency  makes  mistakes,  as  well  as 
lU  clients.  It  can  only  report  what  is  reported  to  it;  ard  its  re.wters, 
though  generally  well-informed  men,  do  not,  and  cannot,  know  evervthini 
that  IS  occurring.  "         * 

In  examining  Uiese  rei>orts  it  is  always  important  to  note  the  differ- 
ence between  farti  alaled  and  opiuiom  eiprrtied. 

With  regard  to  the  balance-sheets  in  sueh  reports,  it  should  he  re- 
membered that  they  are  comnumieated  by  the  partv  himself.  A  banker 
ol  course,  will  compare  such  balance-sheets  with  anv  that  have  been  ren- 
dered to  him. 

But  these  reports  are  not  the  only  reports  that  mercantile  agencies 
publish.  An  important  part  of  their  busine«i  is  to  collect  information  of 
the  change,  that  occur,  especially  those  of  an  unfavorable  character  Thus 
Iney  furnish  their  supporters  with  lists  of  .»,(.  that  are  tak.n,  and  what 
•s  more  important,  of  chatld  mortgage,,  bill,  of  talc.  judgmcnU.  c^cca- 
(MM.  and  ,n,olvencic,.  Partnerships  also  come  within  their  purview 
those  formed  or  dissolved,  together  with  information  as  to  dcalli  of  part- 
ners, which,  of  course,  ends  the  partnership.  The  lists  containing  such 
information  are  long  and  the  task  of  examining  them  laborious.  But  no 
banker  who  does  an  .active  business  with  the  mercantile  communitv  can 
afford  to  pass  them  by,  or  to  look  over  them  in  a  perfunctory  manner 
An  omission  to  notice  some  single  unfavorable  particular  may  coat  a 
banker  or  his  customers  thousands  of  dollars,  especially  if  it  relate  to  a 
foreign  firm. 

Bankers  at  times  ask  information  of  one  another.  Formerly  there 
was  scarcely  any  other  source  of  information  available,  and  much 
eorrespondence  was  carried  on  between  them  on  the  subject.  But 
time  has  brought  new  developments.  Bankers  do  not  now  correspond  as 
much  as  they  once  did  respecting  their  customers,  though  they  do 
occasionally  compare  notes  in  confidence.  There  are  considerations  as  to 
auch  information  ihat  do  not  apply  to  any  other  mode  of  obtaining  it. 
,  For  example,  let  us  suppose  that  a  banker  desires  of  a  confrere  informa- 
tion as  to  one  of  his  customers.  If  the  customer  is  in  a  good  position  and 
doing  well,  there  is  little  difficulty  in  answering.  But  if  the  contrary  is 
the  case,  what  then?  The  account  of  such  a  customer  may  be  one  that 
the  other  banker  is  carefully  "nursing,''  getting  increased  security  when- 
ever he  can;  hoping  all  may  be  well,  yet  being  by  no  means  sure. 

Is  he  to  damage  his  customer's  credit  by  telling  a  confrere  this?  If 
he  does,  he  may  bring  about  a  stoppage  and  ruin  his  customer.  On  the 
other  hand,  if  he  conceals  the  real  position  and  gives  a  favorable  opinion, 
he  will  violate  the  confidence  which  ought  alw.ays  to  exist  between  'oankers. 
The  result  usually  is  this:  As  bankers  never  care  to  give  an  un- 
favorable opinion,  while  a  favorable  one  may  be  unjust,  and  as  the  de- 
clining to  express  an  opinion  would  be  construed  unfavorably,  they  seldom 


92  BANKING    AND    COMMERCE. 

or  never  ask  one  another  at  all,  that  is,  as  to  their  own  rcnectivc  enstom- 
eri. 

A  banker  in  Canada  who  buvs  a  large  amount  of  bills  upon  houses  la 
centres  of  British  trade,  wiU  find  it  advantageous  to  visit  surh  centres  oc- 
casionally, and  compare  notes  on  the  spot,  with  his  banking  correspond- 
ents. In  so  doing  he  will  learn  many  things  which  would  never  be  eom- 
munieated  to  him  in  writing,  and  which  no  mercantile  rating  would  give 
him  any  idea  of.  There  is  this  reason  for  taking  such  a  course,  that 
English  bankers  never  commit  themselves  in  writing  eicept  to  very 
guarded  statements.  They  are  in  the  habit  of  stating  that  such  and  such 
a  «rm  is  "cotuidtred  to  be  morth,"  say,  a  hundred  pounds,  or  it  Is  "good 
lor  engagements." 

Such  reports  generally  fail  to  meet  the  need  of  the  enquirer.  To  say 
that  a  firm  in  Britain  is  good  for  a  few  hundred  pounds,  when  the  banker 
on  this  side  knows  that  they  are  making  purcliases  amounting  to  many 
thousands,  is  obviously  insulBeient.  And  to  say  that  such  a  one  is  "con- 
sidered" to  be  "good  for  his  engagements,"  if  the  statement  is  taken 
hierally,  is  simply  to  suggest  that  he  has  no  capital  at  all. 

If  specific  information  is  wanted,  the  better  course  is  to  ask  speciiic- 
ally,  giving  eiaetly  the  point  to  be  covered.  When  the  question  is  put  in 
a  vague  and  general  form,  "What  is  the  standing  of  such  a  one^  '  it  will 
bring,  as  a  rule,  only  a  vague  and  general  answer. 

But  if  the  querist  puts  such  a  qneslion  as  this:  "Would  it  be  safe  for 
our  customer  here  to  ship  snch  a  firm  two  thousand  pounds'  worth  of 
merchandise  without  security?-  he  is  likely  to  get  a  much  more  specific 
answer,  guarded  though  it  may  be. 

The  last  remaining  source  of  information  arises  in  the  daily  inter- 
course of  a  banker  with  his  customers  and  the  public.  This  has  been  re- 
ferred to  already,  but  it  may  be  desirable  to  observe  that  a  banker,  even 
while  transacting  routine  business  with  customers,  or  mingling  with  hil 
fellows  in  the  club  or  elsewhere,  will  note  anything  affecti:  g  his  interests; 
and  by  practice  will  acquire  the  art  of  doing  this  even  when  least  appear- 
ing to  do  it.  A  casual  remark  dropped  in  conversation  across  the  table, 
or  a  query  addressed  to  him  in  a  chance  meeting  with  an  .icquaintance, 
may  give  to  a  quick  intellect  a  clue  which,  if  followed  up,  will  lead  to 
most  important  consequences. 

Almost  every  particular  in  this  and  the  preceding  chapter  has  an  ap- 
plication to  Commerce  as  to  Banking.  The  wholesale  merchant  witli  his 
large  circle  of  customers  is  under  the  same  pressure  co  keep  up  informa- 
tion as  is  the  banker.  Both  mainly  rely  on  the  same  sources  of  informa- 
tion and  their  interests,  as  regards  information,  are  identical.  They 
cover  the  same  ground,  and  are  subject  to  the  same  conditions.  Both 
are  dispensers  of  credit,  the  one  in  money,  the  other  in  goods,  and  the 
same  general  laws  of  credit  are  applicable  to  both  bankers  and  merchants. 


CHAPTER  Xir. 


LOANS. 

D.PFEBINCE  Betukex  Loans  and  Di.counts-Loans  to  Vabiou. 
tl.A88E»-To  Fabmeb.— To  G»Aix  Mebchants— \Va»ehou.«  Rx- 
CEiPTi  or  Vabioi-8  Kinds  and  Tiit  Law  Relating  Tiiibeto. 

"VJ^HEN'  n  bankir  Iras  ncquired  «ii(Iicient  information  as  to  personi 
T  T  and  serurili.s  to  enable  liiin  to  part  with  money  with  reasonable 
assurance  of  its  return  when  promised,  he  may  enter  upon  that 
difficult  field  of  operations  which  will  prove  either  the  making  or  the 
marring  of  him,  viz,,  the  conducting  of  Loans  and  Discounts.  It  is  obvi- 
ously in  this  department  of  a  banker's  business  that  the  eonneelion  be- 
tween Banking  and  Commerce  is  most  clearly  shown,  and  most  constantly 
in  operation.  The  public  a;  large  has  to  do  with  banking  corporatiom 
as  issuers  of  ci.tulaling  notes  and  receivers  of  deposits,  but  in  making 
loans  and  diseounUng  bills,  banks  have  to  do  with  the  commercial  classes 
almost  exclusively.  It  is  well,  however,  at  this  stage,  for  the  sake  of 
clearness  to  reiterate  that  the  word  "commerce"  is  used  throughout  this 
work  in  a  broad  and  comprehensive  sense.  Besides  the  merchant,  prop- 
erly so  called,  the  whole  class  of  manufacturers  is  included,  inasmuch  as 
they  require  to  .ell  what  they  produce  and  to  6ay  their  raw  material.  For 
the  same  reason,  the  whole  farming  class  is  included;  for  the  farmer 
appears  on  the  market  both  as  a  seller  and  a  bu)er.  He  sells  his  products, 
and  he  buys  his  machinery  and  materials. 

Banking  is  distinguished  from  money  lending  in  that  it  requites  an 
active  "lurn-over;"  hence  loans  for  periods  of  years  are  enlirelv  <oreign 
to  Its  scope,  as,  also,  ore  loans  of  money  which,  even  if  made  to  a  business 
firm,  cannot  be  rep.iid  periodically  out  of  its  active  operations.  To  loan 
a  manufacturer  money  to  build  or  equip  a  mill  is  a  violation  of  prudent 
banking.  cv< :.  though  the  security  may  be  good.  The  whole  operation  of 
loaning  money  on  security  of  land,  buildings,  ships,  or  mines,  belongs  to 
another  category  of  business  than  banking.  This  has  been  so  recognined 
by  the  Legislature  of  Canada  in  granting  charters  to  banking  corpora- 
tions, that  they  are  absolutely  prohibited  from  lending  money  on  immov- 
able property. 

This,  therefore,  being  understood  at  the  outset,  let  us  enquire  what 
line  of  loans  are  called  for  by  the  operations  of  Commerce?  On  what 
ground,  and  with  what  documents  of  security,  can  a  merchant  or  manu- 
facturer properly  approach  a  banker  when  he  desires  the  use  of  the 
bank's  money? 


9t 


BANKING    AND    COMMERCE. 


DlsTlxcTlox  Between  I.oaxs  and  Ducounti. 

TIil«  qucslioi.  opiiiH  up  „  variety  of  comidcration.,  the  first  of  which 
IS  the  distinction  Utwcen  loans  and  discounts. 

Though  both  classes  naturally  arise  in  the  dealings  of  bankers  with 
commercial  custoiners  and  both  are  exactly  alike  in  that  tliev  draw  money 
from  a  bank,  tliere  are  fundamental  dilferenees  between  them  in  their 
origin,  nature,  and  practical  working.  The  main  difference  is  this, 
niien  a  Merchant  or  Manufacturer  has  made  a  sale  of  goods  and  received 
in  return  a  written  promise  to  pay  for  them  at  a  delini'.e  time,  he  is  in 
possession  of  a  valuable  document,  which  he  m.iv  offer  to  a  banker  for 
ducmnt;  thai  is,  he  will  ask  the  banker  to  give  him  the  ouiount  promised 
m  the  document,  deducting  the  interest  thereon.  This  deduction  of  in- 
terest beforehand  is  what  the  word  ■discount"  means.  The  merchant,  of 
course,  signs  his  name  to  the  doeiiment,  and  this  signature,  in  law.  op- 
erates as  a  guarantee  of  payment,  should  the  other  partv  not  fulfil  hi» 
promise'" 

The  banker,  therefore,  having  a  document  founded  on  a  sale  of  mer- 
chandise (for  value  received,  as  the  technical  expression  is),  has  a  prhm 
facte  assurance  that  merchandise  of  sufficient  value  to  ensure  payment  has 
passed  from  the  seller  to  the  buyer.  This  transaction  between  the  banker 
and  his  customer  has  a  close  analogy  to  the  purchase  and  sale  of  a  com- 
modity; the  bill  being  the  commodity,  and  the  net  proceeds  of  the  discount 
the  price  paid  for  it.  And  it  has  been  contended  bv  an  able  writer  oir 
banking  that  this  is  the  proper  mode  of  viewing  it;  tllat  is.  as  a  »n/e  iri(;i 
gi,aranlee;  and  that  the  proper  title  of  all  such  transactions  in  a  banker's 
books  and  elsewhere  is  not  "Bills  Discounted,"  but  "Bills  Purchosed." 
This  practice  lias  been  adopted  by  some  bankets,  and  it  has  the  advantage 
of  making  a  clear  distinction  between  two  classes  of  transactions,  the 
confounding  of  which  on  this  continent  has  worked  very  serious  mischief. 
A  banking  loan  is  a  different  matter  in  several  respects.  To  begin 
with,  it  is,  as  a  rule,  app!,  d  for  at  an  earlier  period.  The  customer  has 
no  promise  from  a  buyer  to  offer;  in  fact,  in  many  cases,  he  has  not  any 
salable  goods  in  possession  when  he  negotiates  the  loan.  What  he  desire» 
is  to  borrow  the  money  in  order  to  produce  the  goods;  or,  in  some  cases  to 
bring  the  goadi  to  his  warehouse.  The  transaction,  to  go  to  the  root  of  it, 
is  borromng  nwaej,,  instead  of  «e«in^  a  documenl.  It  is  important  to 
keep  the  distinction  clear;  but  this  is  more  difficult  on  this  side  of  the 
Atlantic  than  in  Great  Britain,  owing  to  the  prevailing  practice  of  having 
borrowings  represented  by  promissory  notes,  made  in  the  same  form  a» 
those  given  for  a  purchase  of  goods.'" 

"  T" "o  """'  course  or  hu.ines..       But   there  are   caso..   cipeclally   la 

larse  flnanclal  centres,  where  a  tinker  or  jUl-broker  agreea  to  relieve  the  mer- 
chant from  being  so  eallen  upon.  In  that  esse,  the  merchant  when  endorslns  the 
blU,  uldi  the  word,  "without  recouree."  meanlni  (and  thta  Is  the  letnl  effect  of 
the  term),  that  he  Is  not  to  be  called  on  tor  payment  In  case  the  bill  Is  dishonored. 
The  banker,  of  course,  charges  a  higher  rate  for  such  a  tranpartlpn 

••  The  notes  which  represent  borrowings  are  often  treated  by  Canadian  b«nk» 


LOANS. 


9» 


f.Jt'"  ."  '1'"  "''""<""«  "-^dil  i.  propcrf  to  «  b.nker,  tht«  .,1., 
four  p,aot,™J  con.,dcr.tlon,:  For  how  much?  For  how  long?  F„' 
««,dTT  "'""f ,""  ""*  •«"'%?     Th.  two  «„,  c.n  b.  .n- 

r.-  L      •   ""''    "'"'''   ""'"'"«"''"    •"■)   con.ult.tta    b.fo«    " 

Wl  become,  very  „pp.renl,  for  when  ,  trade  bill  i,  offered,  three  of  the 
foregomg  question,  are  an.wored  by  the  bill  it.elf.  For  it  tell,  for  how 
long  for  how  much  and  on  what  .eerily ,  and  that  without  a  word  .poken 
by  the  customer  who  offered  it.  But  when  he  de.ire,  a  loan,  a  cu.L.r 
mu.l  explain  h,m.elf  on  every  one  of  these  point.,  and  be  prepared  to 
answer  question,  as  to  the  two  last. 

di..T!l."V"  !'  """^  """'■""  °'  '"»"'  "'  """  "«  "f  "'-P-lion,  in  the 
d  ttl^  »;;«  '"""«"»'"  "rise,  and  each  variety  ha.  it,  own  special  ^ 
dition,.    All  these  may  be  summed  up  in  the  following  classificationi : 

in  tLir^Zucr"""*"  ""'  ■'*'"""■""  """"'"'  '"■'  ""'■  "■'  ■'"""« 
2.     Loans  connected  with  the  product,  of  Wood,  and  Forests 
S.     Loan,  connected  with  Manufacturing  Industrie.,  a.  well  a.  min- 
ing, fishing,  etc. 

4      Loan,  arising  out  of  the  Importing  trade;  and  the  dealing  in 
manufactured  articles.  * 

All  these  are  di.tinctly  Commercial. 

But  there  are  also  loan,  to  variou.  classe.  of  corporation,,  ,uch  a, 
railways  power  companies,  municipalities  and  Government.;  or,  to  capi- 
talLt.  other  than  merchant.,  or  to  private  individuals.  Before  proceeding 
to  consider  in  detail  the  loan,  indicated,  one  general  remark  may  be  made 
with  regard  to  all,  vis.,  that  eierj,  legilimaU  loan  from  a  banter  mil  r«* 
on  o  foundaUon  of  ,alabU  merrhandUe  or  colUctibU  debt,.  Loan, 
credit,  or  advances  that  rest  on  fixed  property,  no  matter  how  safe  they 
may  ultimately  be.  arc  not  ,uch  as  a  banker  can  properly  make,  or  should 
be  a,ked  for. 

Even  when  security  on  real  estate  may  lawfuUy  be  taken  by  a  bank 
as  IS  the  case  in  England  and  Scotland,  it  i,  always  understood  that  mer- 
chandise must  be  possessed  by  the  borrower  to  cover  it.  The  property  ia 
not  considered  as  the  foundation  of  the  loan,  as  is  the  ca.e  with  a  mort- 

Utho«h".Te  ^»„"L«lo'„".^^'"""' '" ""'  •"""  '«»'■' "  •""■•  ""'•  ai»=<>u«.a, 

rJLi     „.  ^  SMlana  renaer.  .uoh  contounaini  of  loan,  and  aiKounta  ImDonlble 
Loan,  or  advance,  ar.  made  by  mean,  o,  „h.,  b.„|„„  ^,„  call  "  v"^«t.." 

Sb,,,M."or  a  reined",'  "^""°'  "  ""  "•""""  '»'°'  «"«wS  .0  runTth. 

,     .1  "  "  '"  '""'■  """ncm.    Thl«  mode  cl  maUni  advance,  li  called 

tlc^l,  the  „m..     Both  a,™.  In  ..i.bll.hin,  a  di.tlacUon  betw,er™n,y  lit 
to  a  cuitoner  and  trade  bui,  dLeounted  tor  Mm. 


96 


BANKING    AND    COMMERCE. 


gage  company  or  cnpitaliit,  but  ai  roUaUral    The  meaiu  of  ordinary  re- 
payment are  always  eonsidered.  and  this  must  i-onsist  of  merchandise. 

This  being  premised,  various  classes  of  banking  loans  will  now  be 
brought  under  review,  for  the  purpose  of  iwinting  out  the  conditions 
which  govern  them  respectively,  and  the  proper  mode  of  dealing  with 
them. 

Loans  Conncctcd  With  Aonict'LTi-RAL  Pubsvits. 

First  amongst  these  come  loans  or  advances  to  the  cultivator  of  the 
soil,  the  farmer.  Loans  to  farmers  are  the  common  staple  of  the  business 
of  branches  of  banks  in  rural  districts,  and  the  accusation  made  against 
chartered  banks,  that  as  a  rule,  they  refuse  to  make  such  loans,  is  without 
foundation.  But  a  bank  cunnut  he  expected  to  lend  money  to  every 
farmer  who  applies  for  it. 

If  a  farmer  wishes,  as  he  sometimes  does,  to  borrow  money  to  bui!d  a 
new  house,  or  to  make  a  payment  on  his  land,  or  to  improve  his  barns  and 
stables,  still  less  if  he  wants  to  buy  more  land,  he  cannot  be  surprised  if 
the  banker  refuses  to  lend,  for  none  of  these  will  furnish  the  means 
within  themsolves  of  repayment.  That  could  only  be  had  by  forcing  the 
guarantor,  or  by  selling  the  borrower's  property.  Further,  if  the  appli- 
canl  is  known  to  be  dilatory,  or  unsteady,  or  unreliable  in  his  representa- 
tions, he  cannot  expect  a  banker  to  part  with  his  money  in  his  fai'or,  no 
matter  how  good  a  guarantor  he  offers.  The  fact  that  a  farmer's  land  is 
heavily  mortgaged,  or  that  he  does  not  own  the  property  at  all,  are  cir- 
Ciimstances  very  unfav^..  able  to  borrowing,  but  if  the  farmer  is  a  man  of 
respectable  character  whose  promise  can  be  relied  upon,  and  can  offer  a 
good  guarantor,  he  may  reasonably  ask  for  a  loan  from  a  bank  for  the 
following  purposes: 

1.  He  may  require  nn  advance  for  the  purpose  of  buying  seed,  pre- 
paring his  land  for  a  crop,  meeting  the  expenses  of  gathering  in  and 
harvesting,  all  having  in  view  the  resulting  crop. 

2.  A  farmer  whose  prinripal  occupation  is  breeding  horses,  cattle  or 
sheep  may  reasonably  ask,  and  the  banker  may  reasonably  lend,  as  much 
money  as  will  buy  such  stock  as  will,  when  fattened,  he  sold  off  the  farm. 
In  this  case  as  in  the  former  the  money  loaned  will  furnish  from  within 
itself  the  means  of  repaj-ment.  But,  obviously,  more  care  is  needed  for 
this  kind  of  business  than  the  other. 

S.  In  a  dairy  district  a  farmer  whose  principal  product  is  butter  or 
cheese,  or  raw  material  for  making  them,  will,  as  a  rule,  need  to  borrow 
less  than  one  who  has  to  depend  on  his  crops,  for  returns  of  dairy  prod- 
ucts are  more  rapid.  But  he  may  reasonably  ask  an  advance  for  such  a 
moderate  amount  as  is  required  to  buy  fodder  at  certain  seasons,  or  as  is 
represented  by  the  amount  accumulating  at  his  credit  in  the  books  of  a 
cheese  factory.  (Care,  however,  is  needed  here,  for  this  money  is  some- 
times not  forthcoming.) 

But  in  the  last  two  cases  a  banker  needs  to  watch  that  his  monej  !• 


LOANS.  ^ 

d«d  lo.n  or  lock-up  on  hi.  h.nd.,  .nd  comnwnlr  «ouL    „  1.  , 

teg  .  K.,on.bk  .mount,  con.ldering  the  .i.e  of  U.  f.nn,  „,  ,he  extent 
of  hii  dairy  operation..  '        '"°  ""'" 

if  ™fd       »f     °".^  """f"-'"."-     I-°.n.  to  f.m,er.  rTelfre-uJ  fnlo.^ 

«i;";"Cft'o::.°'  '""^-"'  --^  -«-  --"  i/borro,:.  t 

P...lng  from  the  f.rmer  him.elf  to  the  man  who  deal,  in  hi.  nroduet. 
«  are  .ntroduced  to  a  cl...  of  loan.  „f  .  „„„  e«en.ive  cha  LJeT^T 

.1^a'r«  ,r,rh     "'  7""  ""■  ^'  ""  P'"^"^'  "f  "-e  fanner  are 

.o  large  a.  to  have  given  ,i«  to  .everal  well-marked  line,  of  .ubdivi.ion 
One  el...  confine  them.elve.  to  ^oi».  other,  to  c»ee.e  and  6.Her  oth« 
to  ».ooi,  other,  to  ra«(e.  others  to  hog,. 

The  country  rtorekceper,  indeed,  mav  buy  from  the  farmer.  aho,rt  him 
more  th»  one  of  thi,  variety  of  pr«.ict.  ;'but  at  the  „™t  m^v^  h- 
^d  „tv°"  >"  ".f"™',""""-  The  larger  grain  merchanU  buy  grata 
and  nothing  el.e  the  wool  merchant,  wool,  and  «  on  with  the  ^rt  The 
deahng,  of  each  of  theae  cl.„e.  with  a  banker  are  of  a  ch«^er  i^! 
vojviug  a  different  .tyle  of  ri.k,,  and  demanding  .  di.ttart  I^TLI 

The  Gnaw  Trau. 
The  mo.t  important  of  the.e  i>  the  grain  trade. 

ri.k  andl'fl'l  "v  °"  °'  ^2"  •T"'*'°"''  ''•'"''  ""»"■'•  ""•Wcrabl. 
at  „;,«  """"■r""*' P«>«"i  "'*  po..ibilitie.,  however,  of  heavy  gata. 
at  one  time,  and  heavy  Ios.e.  at  another.  It  i.  a  trade,  too,  ta  which  kr« 
apeculative  operation,  are  con,t,ntly  going  on  ta  gr;at  Centre..  It"?! 
^S»l  i"»tance,  than  any  other  of  penn^ient  proaperity,  and  mo„ 

^iti^.  mi  I  T  °":J'  "■"  '''■°  *""  "  "f"^'™'  "f  deaLg.  aggrT 
gittag  million,  have  ended  their  career  ta  poverty.     Yet  no  tradf  refdl^ 

•eta  aU  the  wheel,  of  commerce  ta  moUon.    The  men,  therefore,  who  per- 

f  n7t„  "  "^'"  r/"';""*  '"  ''°""'''''=  recognition  in  the  cimmunUy, 
and  t.  .  con.iderate  hearing  from  a  banker  when  they  apply  for  adva^l 


P8 


BANKING    AND    COMMERCE. 


But  in  draltng  with  inch  npplicatlont  the  bAnktr  will  nerd  to  rxrivlie  nil 
the  facultiei  of  jiidgtnrnt,  caatlon  and  t-xperlcncr  he  poiieiiei.  The  ac- 
counti  of  grain  merchnntt  are  among  the  most  profitable  and,  in  many 
resprcti.  the  most  indirectly  odvantigroui  that  n  bank  poiieiiet.  Thej 
ran  be  carried  on  with  much  facility  in  Canada,  owing  to  the  admirable 
■yitem  of  circulation  the  country  enjoyi.  The  turn-over  ii  large,  the  re- 
t**ni  ripid,  and  the  advances  give  rise  to  numerous  bllli  of  exchangCt  both 
inland  and  foreiipi,  yielding  collateral  profits.  Yet  a  prudent  brnker  will 
never  forget  that  the  huslnrss  is  accompanied  with  unusual  risks.  Wheiif 
therefore,  a  grain  merchant  proposes  to  obtain  advances,  the  first  con- 
sideration will  be  how  much  tapilal  he  hat  of  hit  own,  and  in  what  shape 
that  capital  exists.  For  the  amount  of  such  capital  and  the  shape  In 
which  it  is  held  furniHh  nn  exact  index  to  the  amount  he  may  reasonably 
borrow.  No  man  has  the  right  to  hold  grain  on  borrowed  money,  without 
having  his  own  capital  as  a  margin  against  loss  to  the  lender.  How  much 
per  cent  this  margin  should  be,  will  depend  on  the  season  and  the  state 
of  the  trade;  but,  obviously,  the  higher  the  price,  the  higher  per  cent, 
should  be  the  margin.  In  such  circumstances  there  Is  more  room  for  a 
fall,  and  more  chance  for  a  holder  and  even  the  bank  itself  to  lose. 
When,  therefore,  a  banker  knows  with  reasonable  assurance  what  his  pro- 
posed customer's  capital  is,  he  can  calculate  how  much  It  would  be  rea* 
sonable  to  lend  him. 

But  this  is  only  the  6rst  step.  It  would  be  most  unwise  for  a  banker 
to  lend  any  man  money  to  buy  grain,  unless  the  borrower  had  a  good 
knowledge  of  the  trade.  Yet  this  is  often  wanting.  The  grain  trade  is 
the  easiest  of  all  trades  for  n  man  to  venture  upon.  If  he  has  a  little 
money  he  can  open  an  office  anywhere  and  announce  himself  a  buyer  of 
wheat.  If  in  the  country,  farmers  will  certainly  come  to  him  and  sell  for 
cash.  If  in  a  city  he  can  go  on  Change  like  any  other  man,  or  employ  a 
broker  to  do  it,  buying  and  selling  to  his  heart's  content,  as  long  as  be 
has  money  to  put  up  a  margin.  He  needs  no  warehouse,  no  store,  or 
factory,  or  water  power,  or,  in  fact,  anything  whatever  such  as  men  need 
In  other  lines  of  busineu. 

This  facilitj'  is  the* special  danger  of  the  business;  and  experience 
proves  that  when  a  man  enters  upon  it  in  this  style  he  will,  before  long, 
be  ruined.  The  temperament  of  the  borrower  is  a  matter  to  be  considered. 
The  grain  trade  is  a  dangerous  one  to  s  man  of  sanguine  temperament.  A 
man  of  this  sort  who  has  borrowed,  let  us  say,  $10,000,  from  a  bank,  may, 
inRtead  of  buying  that  amount  of  wheat,  be  drawn  into  putting  up  the 
money  as  a  margin  for  his  share  in  some  deal  or  "corner."  This  has 
happened,  as  will  be  seen  in  a  subsequent  chapter.  The  risk  of  $10,000 
worth  of  wheat  he  could  legitimately  carry;  but  the  risk  of  ten  or  twenty 
times  as  much  would  plunge  him  far  out  of  his  depth. 

Even  if  he  avoids  speculation,  a  sanguine  man  is  apt  to  persist  in  hold- 
ing for  a  rise  when  he  ought  to  sell,  and  pay  off  his  advances.  To  a 
banker's  remonstances,  such  a  man  always  has  a  plausible  theory,  which 


LOANR.  gp 

th.,  for,  bold.  „„  „„„i  „  ,„.. ,.  ,„,„,„d  .„„^,.„,  ,„  ,j;„ ,,,___       ;^ 

'Ple  of  thli  If  nlw)  gircn. 

•nd  willing  to  «11  ,l,e„  .  „„„d  profit  „»  be  „wdc.    On.-  of  Ih.  frw 

.Ufib  .ted  hi.  being  »bk  to  .t.nJ  while  other,  were  ^.lllng  to  the  fT^  h' 
w..  alw.,..  wdling  for  .om.  „,*„  ,„„.  ,o  take  the  /.„  ee,<  „,'  pS 

Another  important  point,  bnt  one  often  lo.t  .Ighl  of,  I,  tha    a  g,.|„ 
merchant  need,  to  have  a  eertain  line  of  clomer.;  ex.ctlv  a.  a  dry  g^ 

i.  one  of  tho.e  who«  mercantile  eour.e  I.  generally  .hort.  Saeh  buying 
doe.  not  de.erve  the  name  of  trade.  It  I.  .imply  .peeulatlon.  All".„* 
ce«ful  gram  merehant.  buy  with  a  definite  purpo.e  In  view.  Thev  have 
a  conneellon,  at  home  or  abroad.  They  know  that  eertain  varirtie.  an, 
wanted  by  eertam  people,  or  in  eertain  market..  Commonly,  or  .requent- 
I:  ^Z  ■"•"  "1""  '«""  """"•  "  ••"••"'  "•"cfc.nf.  MlUer,  who  «, 
Vl'l^'l'T^l  ■"  "  "f-"""""  •«•  "■"  '»■•«'  '•nough  to  go  into  . 
w.de  market  themaelve..  The.e  are  legitimate  eu.lonKr..  So  are  the 
merchanU  of  foreign  itie.  like  Liverpool.  London,  Glaagow  or  Antwerp, 
who  maintain  a  eon.lant  eorre.poDdenee  with  Canada  indicalin.  thcS 
particular  wanU,  and  not  .eldom  making  firm  offer,  to  buy.  The.e  ^■. 
.11  legitimate  form,  of  outlet  to  a  grain  merchant  on  thi.  .ide  the  Atlantic 
But  the  man  who  buys  without  any  .peelfle  purpo.e,  and  .end.  hi.  .tock 
to  "foreign  market  on  con.ignmenl,  lru.ling  to  the  mere  chance,  of  the 
market,  and  having  no  idea  who  will  be  the  real  buyer  of  hi.  .tock  i. 
pur.uing  a  road  which  .ooner  or  later  lead,  to  ruin.  Of  thi,  al.o  a  con- 
.picuou.  example  I,  given  In  a  .ubHquent  chapter. 

Loan,  on  Warehoi-.e  Receipts. 
The  amount  of  a  reaK,nable  credit  to  a  grain  merchant  ha.  already 
been^d.«o,.ed.     It  remain,  now  to  eon,lder  the  important  quction  of 

Except  for  .uch  moderate  amount,  a.  may  be  advanced  to  the  grain 
dealer  of  a  .mall  village-generally  the  .torekeeper-the  time  when  per- 
sonal guarantor,  or  endorKr,  were  commonly  offered  ha.  long  paued  by 
The  amounU  are  too  large  for  .uch  a  form  of  .eeurlty  to  be  taken  But 
as  there  was  necessity  for  the  trade  to  be  carried  on,  and  an  ahnost  uni- 
versal necessity  for  bank  advances  to  do  it,  special  forms  of  legislation 
were  devised  by  which  the  grain  itself  could  be  pledged  as  security.  The 
ordinary  chattel  mortgage  was  seen  to  be  ineffectual,  as  too  slow  in  opera- 
tion, and  too  formal  in  character  for  so  q:.iek-movlng  a  trade.  A  special 
style  of  pledge  was  therefore  legalized,  giving  the  „me  righU  and  pow- 
ers as  a  mortgage,  yet  of  so  simple  a  character  that  men  of  buaines,  could 


m 


100  BANKING   AND   COMMEBCE. 

Du-  II  wllhool  the  IntfnTnllon  of  n  Inwyrr.  ThU  tprclal  rtjrlc  of  pMgt 
wai  9  nirrhouit  rrccipl.  and  w»«  no  frmiird  ••  to  give  the  bank  idvanc- 
Ing  upon  It,  in  tlirnry  nl  linrt,  llic  Mnw  powrr  ovrr  the  rommodlljr  u  If 
he  hod  it  locked  ii|i  In  n  wnrfhouM  of  hli  own,  «lwi.yi  auppoiing  the 
rinrument  to  tie  iffHiiinr, 

The  Idea  of  inch  «PCiirlt.T  hn«  licrn  developed  al  elreuniataneea  oroM 
by  amending  and  enlarging  rnaetmenla,  lome  of  them  anything  but  rea- 
sonable, but  In  it«  original  and  noturnl  form  the  document  wai  an  acknowl- 
edgment bv  the  keeper  of  a  warelionae  that  he  bad  ao  many  buihell  of 
grain  In  hi'a  iwaneiaion,  which  he  would  deliver  to  lllc  owner  when  called 
for.  or  to  hit  order.  Such  receipt!  were  natural  a>  between  the  owner 
of  grain  and  the  owner  of  the  warebouae,  and  were  in  uie  long  before 
there  wni  any  ipecinl  legiilatlnn  about  them.  The  leglilation  wal  to  en- 
able the  owner  of  grain  to  make  a  legal  !r»«ffer  to  a  bonk,  not  of  the 
document  merely,  but  of  title  to  the  groin  Itaelf,  lo  that  a  banker  would 
b€-come  M  much' the  owner  of  the  grain  a>  if  he  had  bought  it;  with,  how- 
ever, two  important  limltatloni.  The  banker  wal  debarred  from  aelllng 
the  property  without  giving  ample  notice  and  could  of  course  only  lell 
what  would  cover  hia  advance.  Both  were  moat  reaionablc.  But,  on 
th--  other  hand,  the  banker'a  right  to  the  grain,  after  making  an  advance 
upon  it,  wai  made  absolute  aa  against  the  claim  of  any  other  creditor,  even 
of  the  party  who  hod  sold  the  grain,  in  case  he  had  not  been  paid  for  it. 
This  provision  was  absolutely  necessary  to  the  safety  of  loons  made  on  the 
security  of  such  properly,  and  the  whole  trading  community  have  acqui- 
esced in  them  aa  being  for  their  advantage.  For  they  well  know  that  the 
more  perfect  the  security,  the  more  easy  it  Is  to  obtain  odvancea  on  it,  and, 
other  things  being  etjual,  the  more  moderate  the  rate  of  interest. 

The  law  containi-d  another  provision  of  a  p.'rfectly  equitable  nature, 
vii..  that  the  document  could  only  carry  such  powers  when  it  had  been 
lodged  at  the  time  the  advance  was  made.  It  was  seen  to  be  unreasonable 
that  a  man  should  be  able  to  pledge  grain  to  a  banker  aa  security  for  an 
old  debt,  and  th.it  such  banker  should  have  s  prefennce  even  over  an 
unpaid  vendor.'"  The  liw  intended  that  the  loan  secured  by  the  pledge 
should  always  be  connected  with  the  pledge  Itaelf. 

But  as  time  went  on,  and  circumstances  transpired,  two  amendments 
were  made.  The  most  important  of  these  was  *.*-3t  a  man  mi^ht  pledge 
grain  (and  other  specified  agricultural  products)  when  ilored  in  hi*  own 
trarrkoate;  and  that  this  pledge,  when  properly  transferred,  should  give  a 
banker  the  same  rights  as  the  receipt  of  a  warehouse  keeper  would  give. 
This  was  to  meet  the  case  of  grain  buyers  in  towns  and  villages,  where  no 
public  warehouses  exist,  and  whose  purchases  were  therefore  stored  in 
warehouses  or  sheds  of  their  own.    It  had  reference  also  to  the  dealers  in 


«  There  Is.  however,  not'ilns  to  prevent  a  borrower  from  givlna  a  warehouse 
receipt  to  a  bank  ae  eecur'.y  fur  nn  liiiteuedent  debt  If  he  pleased  But  In  thAt 
case  the  document  will  Klve  the  bank  no  risht  to  hold  the  gnln  as  afalnst  other 
eredltora.    The  banker  can  onljr  take  the  receipt  for  what  It  Is  worth. 


LOANS. 


othrr  aurli'ijllurnl  prmliuU,  >ii<h  at  iliiiic  niiil  |Hirli,  wlui,  inn  In  large 
cllln,  nimoil  iiiilii  n^illy  »lorr  tlirir  good.  In  warilimiain  wliUh  Ihiy 
cithtr  own  or  litiw.  Tllr  ollvr  nnnndniinl  win  Intindi'ri  lo  oinini,-  the 
dllDculty  ix|Krli-ncid  hv  ilinlin  of  iiniill  cnpitnl  In  complyiiig  with  Ihr 
clnuit  thnl  ii  warihoiiai'  rrnlpt  lo  W  rffntunl  iiiiiil  b<-  Ulpd  iit  thi-  llinc 
of  till'  ndmiin-.  Tlit-  ilinlrr  In  llili  chip  muit  hnvr  Iniiglit  mid  wnrc- 
houird  llic  groin  In  fori'  gilting  nn  admnoc  ii|ion  il.  But  mnny  ilrnlcn  had 
not  .'apltol  rnoiigli  to  do  tlili.  or  hid  Ihilr  rnpilnl  In  othir  lormi  llinn 
monry.  Tliiy  n-<piirid  iiminy  at  tin-  viry  mitnit.  npicinlly  win  n  diliv- 
crlci  wi  rr  nrtlvi  and  hiivy.  Kormirly  mirh  iiiiii  woiilil  g,t  thi«i'  pre- 
liminary ad<  nnrci  on  tin-  trcurlty  of  an  indorarr:  linl  m  thii  hcainr  mcci- 
•arlly  dllfiriilt.  Ihr  law  wai  amindrd  m  hi  to  pili™  i  wnrihoiiiK'  nwipt  to 
be  a  valid  «ieiirity  even  If  lodged  after  the  advi  u-,  waa  made.  Hut  only 
with  Ilk-  proriio  that  thr  borniKer  mutl,  at  llir  limr  of  frlliuit  Ihr  ad- 
l-«»re,  */iif  gireti  a  wrillen  promise  la  Imlge  Ihr  K'arrhnmr  rrrripl  i% 
•lurilian.  The  law  thiii  earrlid  out  it»  original  ii.Untion  lo  make  a  dii- 
tinct  eonneetiim  bi-lwi-i-n  the  ailvani-e  and  the  aeeurlty. 

The.e  amindinentu  w.-re  all  intended  to  locllllat'e  harrowing  bv  grain 
dealer!  (and  deali  r»  In  oilier  produeti  of  l/ic  farm)  hy  enlarging  the 
power  lo  create  wari-houiii:  reeeipti  and  lue  them  as  aecurity.  But  hank- 
era  have  long  ago  found  out  that  though  the  ainendnienti  enlarged  the 
powera  of  borrower  and  lender,  they  were  far  from  .  i  larging  the  lecur- 
ity  In  the  aaine  prn|iortlon. 

For  the  diffennee  In  ihc  aeeuri'y  aifordi-d  by 
warehoiMinian  for  pro|ierty  itorid  with  hiin  b\ 

of  a  man  who  has  aloud  goodi  in  his  own  wan houae  is  alnioat  ineoncei" 
able.  In  the  one  cuae,  the  banker  liaa  the  written  aa.uranee  of  a  per- 
fectly inili-;)endelil  parly,  that  the  grain  exiata,  that  he  haa  got  il  for 
Mfe  keeping,  and  that  he  will  not  part  .villi  it  except  on  the  nlurn  of  the 
docnnunt.  In  the  other  eaae.  there  ia  no  independent  peraon  to  give  the 
aaiurann-.  But  this  ia  the  feature  that  givca  ila  peculiar  value  to  such 
a  document.  Take  tliia  away  and  the  banker  haa  abaolutelv  nothing  but 
the  honor  of  the  Imrrower  to  fall  back  upon,  guarded  of  courae  by  the 
■ame  penaltiea  aa  are  applicable  to  the  man  who  liolda  the  property  of 
another.  ' 

There  is  as  much  difference,  therefore,  in  point  of  real  security  be- 
tween an  independent  wan-house  receipt  and  a  man'a  own  pledge,  as  there 
is  between  a  man's  own  promissory  note,  and  a  good  trade  bill  Yet  such 
pledges  have  their  value.  If  the  grain  exists,  a  pledge  will  hold  it  against 
creditors  1  though  il  is  always  in  the  ownei  a  power  to  remove  it.  And  as 
lo  whether  the  pledged  grain  exists,  ther,  is  the  point  thai  lo  write  out 
a  pledge  for  grain  Ihol  does  not  exist  is  s„  deliberate  a  fraud  thai  il  is 
perhaps  as  rare  as  forgery. 

The  same  lack  of  real  security  (though  there  is  an  appearance  of  il) 
il  found  in  the  taking  of  a  written  promise  lo  lodge  a  warehouse  receipt 
The  only  value  it  has  is,  that,  if  when  a  warehouse  receipt  comes  to  be 


(1  Ffi    ■  >t   given  by  a 
nth  r.  nnd  the  pledge 


:  ■■i| 
/ill 


BANKING    AND    COMMERCE. 


pledged,  that  receipt  will  hold  the  grain  although  the  advance  was  not 
made  simultnneously  with  its  delivery, 

^fEMORANDA     ON     WAnKHOUSE     HeCBIPTS — BeINO     EXTRACTS     FrOM     AN 

Address  ^n  Own  Rrcripts  and  pLEOfiEs,  to  the  Stockholders 
OF  the  MincHANTs'  Bank  of  Canada. 

"As  the  productions  of  the  country  became  more  nnd  more  diversified, 
it  wns  important  to  grant  facilities  for  enabling  banks  to  lend  money  to 
purchase  them. 

So  from  time  to  time,  the  scope  of  the  act,  i.  r..  The  Warehouse  Act, 
w.is  enlarged.  And  the  intention  of  the  Legislature  in  these  successive 
enlargements  is  clearly  shown  by  the  title  of  one  of  the  nets.  It  was 
called  '.in  .net  granting  additional  facilities  in  commercial  transactions.* 
a  very  proper  title,  too. 

So  when  hogs  beeime  an  important  farm  product,  pork  was  included; 
then  hides  and  wool,  then,  as  maltsters  and  distillers  were  large  pur- 
chasers of  farm  products,  maltsters  and  distillers  were  included.  Finally, 
the  matter  was  summed  up  in  general  terms  of  the  products  of  agricul- 
ture, the  forest,  the  mine,  the  sea,  lakes  and  rivers,  together  with  live  and 
df-ad  stock,  in  addition  to  which  manufacturers  were  allowed  to  borrow  on 
pledge  of  goods  of  their  own  manufacture,  or  raw  material  therefor. 

Down  to  the  very  Inst  revision  of  the  Warehousing  Act,  the  great 
object  was  kept  in  view  of  affording  facilities  for  obtaining  money  on 
goods,  wares  and  merchandise;  without  which  the  true  value  of  all  our 
products  would  never  be  obtained,  and  the  wheels  of  commerce  nnd  indus- 
try stand  still. 

The  men  who  sat  on  the  various  Parliamentary  committees  on  this 
subject  were  nearly  all  men  of  business,  who  had  a  practical  acquaint- 
ance with  the  needs  of  the  country.  They  knew  the  vital  importance  of 
affording  banking  facilities  to  the  dealers  in  the  country's  products,  and 
from  time  to  time,  as  the  act  was  reconsidered,  they  kept  this  object  stead- 
ily in  view.  Yet  they  showed  their  wisdom  in  the  safeguards  with  which 
they  surrounded  the  business,  and  particularly  with  regard  to  the  right  of 
an  unpaid  vendor.  And  to  show  how  equitably  the  matter  is  worked, 
though  transactions  of  this  kind  have  amounted  to  millions  every  ■)  ear, 
and  to  hundreds  of  millions  in  all,  the  claims  that  have  been  made  by 
unpaid  vendors  have  amounted  to  an  infinitesimal  fraction. 

But  now  a  mode  of  looking  at  this  class  of  business  has  arisen 
(through  decisions  of  judges)  which  will,  if  carried  on,  go  largely  to 
defeat  the  object  intended  by  the  Legislature.  This  is  founded  on  what 
I  must  consider  to  be  an  extraordinary  misconception.  It  has  been  as- 
serted in  various  quarters  that  the  general  principle  of  legislation  is  that 
banks  shall  not  make  advances  on  goods,  wares  and  merchandise,  and 
that  the  cases  in  which  it  can  be  done  must  be  taken  as  exceptions  to  a 
general  rule.  This  idea  is  not  only  contrary  to  the  fundatiiental  rules 
of  all  banking,  but  to  the  spirit  and  intention  of  all  the  foregoing  legisla- 


LOANS. 


lOd 


tion.  To  legislate  thai  banks  shall  not  make  advances  on  goods,  wares 
and  merchandise  a.  a  general  rule,  would  be  equivalent  to  a  legislation 
mat  a  Mw  miller  shall  not  manufacture  lumber  as  a  rule,  or  that  a  drv 
good,  merchant  shall  not,  as  a  rule,  sell  cotton,  or  that  a  farmer,  as  a 
rule,  shall  not  grow  wheat. 

The  very  essence  of  the  business  of  a  banker  is  to  advance  on  goodl 
ware,  and  merchandise,  either  in  the  shape  of  discounting  bills  repre- 
sentmg  goods  sold  or  m.aking  loans  to  enable  goods  to  be  purchased  or 
held.  Aau  the  whole  object  of  the  Warehouse  Receipt  le'gislation  is  to 
enable  such  advances  to  be  got  at  the  cheapest  rale  by  basing  them  or 
actual  merchandise.  T:.c  restrictive  clause  of  the  Act  is,  that  advance, 
on  goods  shall  not  be  made  except  as  provided  bv  the  Act.  But  the  \ct 
itself  opens  the  door  to  a  wide  enough  range  of  transactions,  and  the 
limitation  plainly  means  that  banks  shall  not  lend  on  goods  as  a  pawn- 
broker does,  or  keep  warehouses  to  store  them  in  as  the  Bank  of  Germany 
does,  and  also  that  a  storekeeper  or  a  dry  goods  merchant  who  buys  goods 
on  credit  shall  not  have  the  power  of  pledging  them  for  bank  advances. 
It  IS  true  that  the  Act  gives  the  lender  of  the  money,  when  he  advances  on 
goods,  a  nghl  to  them,  even  over  an  unpaid  vendor— a  very  strong  pro- 
vision, and  showing  how  strong  was  the  desire  of  Parliament  to  facilitate 
loans  on  merchandise.  But  it  is  safeguarded  by  restricting  the  opera- 
tion of  the  Act  to  cases  in  which,  as  a  rule,  there  i,  vo  unpaid  vendor. 
Any  other  limitation,  I  venture  to  think,  should  always  be  interpreted 
reasonably  and  liberally,  and  with  due  regard  to  the  great  object  intended 
to  be  accomplished  by  the  Legislature,  and  to  the  vast  importance  of  such 
advances  to  the  country  at  large  in  its  increasing  development. 

An  Act  of  Parliament,  as  we  know,  may  be  variously  interpreted;  in 
fact,  il  is  impossible  to  frame  clauses  that  are  not  susc'eptible  of  divers 
interpretations.  If  such  interpretations  are  of  a  nature  to  hamper  and 
emborrass  banks  in  assisting  merchants  to  handle  the  products  of  the 
country,  they  cannot  be  for  the  good  of  the  community,  but  very  much  to 
its  detriment." 


CHAPTER  XV. 


LOANS  TO  DEALERS  IN  GRAIN  AND  OTHER  AORICXTLTURAL 
PRODUCE.— Gontinaed. 

DlFFEHENCE  IS  WAREHOUSE  RECEIPTS — ChBEBE  AND  BuTTER — AdTANCIS 

FOR  Dealing  in  Cattle — Pork — Hides — Wool  and  Hav. 

PURSl'ING  the  subject  of  ind'  pendent  wnrehoiise  receipts,  it  may 
be  noted  that  Ihey  are  by  no  means  all  equal  in  quality.  If  given 
by  a  private  individual,  a  banker  needs  to  make  enquiry  as  to  his 
reliability  before  adi-ancing  money  on  his  receipts,  for  sometimes  the 
relations  between  a  warehouseman  or  wharfinger  and  the  borrower  of 
money  are  closer  than  is  desirable.  Without  any  intention  to  defraud,  a 
warehouseman  has  sometimes  been  induced  to  give  a  receipt  for  goods 
before  he  has  obtained  them,  trusting  to  his  customer  sending  them  on. 
There  is  a  particular  temptation  to  do  this  in  these  days  of  exceptionally 
heavy  deliveries,  which  are  common  in  the  grain  trade.  Such  cases  are, 
of  course,  rare,  and  every  warehouse  knows  it  to  be  a  dangerous  business. 

The  receipts  of  a  railway  corporation  or  a  city  warehousing  company 
are  the  most  reliable  a  banker  can  have.  This  is  especially  the  case  when 
a  banker  is  making  advances  in  the  grain  centres  of  the  United  States.  In 
Chicago  and  Minneapolis  the  system  by  which  warehouse  receipts  are 
registered  and  checked  renders  them  exceptionally  valuable  as  a  security. 
Error  or  fraud  are  practically  impossible  in  connection  with  them.*' 

When  a  borrower  can  present  documents  of  this  kind,  insurance  in  all 
eases  being  effected  in  favor  of  the  bank,  advances  may  be  safely  made  to 
a  far  greater  extent  than  when  they  are  secured  by  guarantee  or  by  a 
dealer's  own  pledge.  In  all  such  cases  a  margin  is  required  and  given, 
and  if  the  margin  is  well  looked  after,  loss  is  practically  impossible,  so 
long  as  the  grain  is  in  the  warehouse. 

There  is,  however,  a  danger  which  arises  out  of  the  necessity  for 
parting  with  the  receipt  when  the  time  comes  for  grain  to  be  delivered.  It 
is  practically  impossible  for  the  ordinary  dealer  to  pay  for  the  grain 
before  it  is  delivered,  yet  without  possession  of  the  receipt  the  warehouse 
company  will  not  -illow  it  to  be  moved.  The  bank  cannot  attend  to  this 
matter  of  shipment;  none  but  the  owner  can  do  it,  but  to  do  it  he  must 

*i  But  Canadian  bankers  who  have,  durlns  some  yeara,  advanced  money  to 
■Tain  merchants  In  Duluth  and  Mlnneapolta  have  learned  by  experience  how 
much  difference  In  quality  there  la  between  receipts  technically  known  as  termi- 
nala;  that  la.  those  fflven  by  the  great  worehouaes  at  the  terminal  of  a  railroad, 
and  those  given  by  small  country  ele\-«tor8  situated  along  the  line.  The  former 
have  Invariably  proved  satisfactory.  The  grain  never  failed  of  dellverj-.  But  th« 
latter  were  not  seldom  the  occasion  of  long  corregpondence,  dlsputeB,  lawsuits, 
and  Injunctions— which  laated  for  months  t>erore  flnal  aettlement  was  reached. 
104 


LOANS   TO   DEALERS   IN   GRAIN.  loj 

hove  the  warehouse  receipt  in  his  jiossession.  The  necessity  of  the  case 
has  given  rise  to  the  standing  custom  in  such  cases  of  delivering  the 
document  to  the  borrower,  he  giving  the  banker  a  formal  pledge  by  which 
the  shipper  is  constituted  a  baii-de  of  the  properly  for  the  purpose  of  ship- 
ment or  sale,  and  under  which  he  undertakes  to  account  for  the  proceeds 
if  sold,  or  to  bring  back  a  hill  of  exchange  if  shipped.  A  breach  of  this 
engagement  renders  the  party  liable  to  proieeutioa  for  fraud.  In  an 
active  shipping  season  the  amount  of  grain  in  Iramil  in  this  shape,  owned 
by  a  single  firm  at  a  particular  timf,  is  often  very  large,  involving  large 
sums  of  money  for  which  the  banker  during  a  short  lime  has  no  security 
but  the  borrower's  pledges. 

The  amount  of  these  in  Chicago  during  any  grain  season  runs  up  into 
millions,  yet  it  is  a  fact  that  failures  to  meet  the  engagement  of  a  hiilee 
have  scarcely  ever  been  known,  even  in  such  a  vortex  of  speculation  at 
Chicago.  The  experience  of  other  grain  centres  has  not  been  m.iterially 
diiferent.  Yet  it  is  natural  for  bankers  who  have  large  grain  .iccounts, 
involving  the  necessity  of  temporarily  parting  with  security,  to  feel 
anxiety  when  many  sales  are  being  elTecled  at  the  same  time,  and  large 
amounts  are  afloat  on  the  mere  honor  of  borrowers.  '•  hese  are  times  that 
press  strenuously  on  a  banker's  attention  the  importance  of  having  honor' 
able  men  as  borrowers,  even  if  at  the  outset  all  transactions  rest  on 
undoubted  security. 

When  the  borrower  brings  a  Bill  of  lading,  or  Railway  receipt,  for 
the  goods  he  is  shipping,  he  almost  invariably  draws  a  draft  against  them. 
The  bill  of  lading  being  attached  to  the  draft,  giver  to  the  banker  dis- 
counting it  the  same  rights  and  powers  over  the  property  that  the  ware- 
house receipt  does.  And  practically  most  of  the  risk  of  the  transaction 
is  then  at  an  end,  except  in  certain  cases  that  arise  in  foreign  ports. 
These  matters,  however,  are  dealt  with  under  the  head  of  foreign  bills. 

Owing  to  the  closing  up  of  navigation,  on  the  lakes  and  c.  lals  of 
Canada  and  the  Northern  States,  it  is  sometimes  necessary  to  hold  grain 
for  many  months  in  warehouse.  To  send  it  by  rail  would  be  altogether 
too  costly.  It  would  destroy  the  profit  of  the  dealer,  unless  there  had 
been  a  large  advance  in  the  price.  These  long  periods  of  holding  grain 
are  not  without  anxiety  to  bankers  who  have  made  advances  on  it,  for  the 
holder  may  be  at  the  mercy  of  the  market  for  a  long  period,  during  which 
neither  he,  nor  any  other  person,  can  move  the  grain.  In  former  daya 
great  losses  have  resulted  to  merchants  from  this  circumstance,  and  not  a 
few  have  been  ruined  altogether  with  considerable  loss  to  their  bankers. 
Now,  however,  the  system  of  dealing  in  "fuluret"  and  "options"  has  be- 
come so  perfected  that  it  is  possible  for  a  holder  of  grain,  who  is  com- 
pelled to  carry  it  for  a  considerable  season,  to  guard  himself  from  loss. 
And  thus  the  very  speculation  in  grain,  which,  under  one  aspect,  is  in  a 
high  degree  baneful,  becomes  in  another  aspect  the  means  of  guarding  an 
ordinary  trader  from  risk.  Of  course,  such  contracts  for  future  delivery 
are.  liable  to  fail  in  execution,  in  case  misfortune  overtakei  one  of  the 


106 


BANKING    AND    COMMERCE. 


contracting  parties,  ot,  in  case  he  bfomcs  involved  in  the  vast  operations 
of  one  of  those  speculutire  "corners"  that  loom  up  now  and  then  in  the 
trade.  But  the  risk  of  this  is  small  compared  with  the  risk  of  long  win- 
ter holding. 

On  the  whole,  and  to  sum  up  the  matter  in  a  few  words,  the  banker.  In 
carrying  or.  the  account  of  a  grain  merchant,  will  need  first  to  be  thor- 
oughly satisfied  as  to  the  honorable  character  of  his  customer.  A  failure 
here  is  sure  to  end  in  trouble  sooner  or  later.  But  'Equally  necessary  it 
is  for  the  dealer  to  be  tt  prudent  and  cautious  man;  for  the  grain  trade 
ii —  of  all  otl  ers — tht  most  dangerous  to  a  man  of  sanguine  temperament 
With  customers  of  hontr  and  prudence,  whose  capital  is  proportional  to 
the  amount  of  business  iliey  do,  and  who  understand  the  trade,  both  as  to 
the  article  itself  and  the  markets  for  buying  and  selling,  a  banker  may  do 
business  from  season  to  season  with  no  greater  liability  to  loss  than 
would  be  found  in  the  a^'erage  of  occupations.  But  he  certainly  does 
need  to  be  on  the  watch  for  any  tymptoma  of  a  speculative  spirit  in  his 
customer,  and  especially  of  his  taking  money  lent  to  him  for  the  purchase 
of  grain,  and  using  it  as  a  margin  for  sneculative  operations. 

The  Trade  Bills  drawn  by  grain  dealers  on  correspondents  are  dealt 
with  in  subsequent  pages. 

li  IS  now  necessary  for  other  branches  of  the  trade  in  farm  products 
to  be  brought  under  review,  and  the  first  to  be  taken  up  will  be: 

The  Cheese  and  Butter  Trade. 
This,  as  is  well  known,  has  attained  very  large  dimensions  in  Canada 
during  the  last  quarter  of  a  centurj-,  and  the  accounts  of  merchants  in  it 
are  amongst  the  largest  of  those  carried  on  by  Canadian  bankers.  Yet 
the  trade  in  cheese  and  butter  is  a  wholly  diiTerent  one  from  the  trade  in 
grain.  It  is  not  so  easy  to  enter  upon;  it  demands  far  more  special 
knowledge  of  the  article,  and  also  more  intimate  acquaintance  with  the 
markets  and  merchants  of  foreign  countries.  There  is  no  speculative 
centre  like  Chicago,  for  this  trade,  and  cooiparatively  little  of  that  buying 
and  selling  in  which  the  article  is  never  handled  at  all.  And  though  the 
prices  fluctuate,  they  seldom  fluctuate  from  anything  but  natural  causes, 
such  as  the  abundance  or  scarcity  of  grass  and  fodder,  or  the  conditions 
of  the  markets  of  Great  Britain.  The  trade  is  not  in  .many  hands;  and 
ruost  of  those  who  carry  it  on  are  men  of  knowledge,  experience  and  good 
connections  abroad.  Moreover,  the  small  dealers  in  country  places  are 
seldom  merchants  on  their  own  account,  but  act  as  agents  for  large  dealers 
in  cities.  The  transactions  of  banks  through  their  country  branches,  with 
this  class  of  men,  are  numerous,  aiid  involve  little  risk,  owing  to  the  fact 
that  they  are  almost  always  in  the  shape  of  drafts  from  city  dealers  duly 
authorized.  A  large  part  of  the  cheese  and  butter  exported  from  Canada 
is  purchased  at  first  hand  from  farmers,  creameries  and  cheese  factories 
by  this  useful  class  of  men.  But  their  dealings  with  a,  hanker,  though 
numerous,  and  large  in  the  aggregate,  are  matters  which  proctically.  in- 
volve no  risk.     The  real  risk  begins  with  advances  to  the  cheese  merchant 


LOANS    TO    DEALERS    IN   GRAIN. 


107 


of  a  city.  Tliwe  ndvances,  ns  in  the  case  of  grain,  and  other  analogoua 
trades,  are  almost  invnrinbly  arranged  beforehand  for  a  whole  season.  In 
considering  them  a  banker  has  to  give  unusual  weight  to  the  character  of 
the  borrower  for  honi'sty  and  reliability,  seeing  that  it  has  come  about, 
by  force  of  circumstances,  that  cheese  and  butter  are  almost  invariably 
stored  in  warehouses  belonging  to,  or  leased  by.  the  merchant. 

The  ordinary  warehouse,  or  elevator,  has  not  the  appliances  necessary 
in  this  climoto  for  the  safe-keeping  of  cheese  and  Imtter,  as  they  are  spe- 
€iall_'-  liable  to  deterioi^tion  under  changes  of  temperature;  from  all 
which  it  follows  that  much  more  of  the  security  tendered  in  this  trade  is 
in  the  shape  of  a  merchant's  own  receipts.  When,  therefore,  an  applica- 
tion is  made  for  advances  to  cany  on  a  season's  trade  in  these  articles, 
the  banker  nerds,  .ibove  all  things,  to  be  sure  of  the  men  he  is  dealing 
with.  If  the  applicants  be  a  firm,  with  one  or  more  partners,  the  character 
of  every  partner  is  a  matter  for  weighty  consideration.  If  during  the 
currency  of  odvnnces  an  additional  partner  is  taken  in,  that  also  should  be 
a  matter  for  consideration,  lest  on  unsound  element  he  allowed  to  creep 
in.  ond  damage  the  stability  of  the  firm.*- 

The  matter  of  knowledge  and  experience  in  the  trade  no  banker  will 
lose  sight  of  in  considering  an  application;  but  the  men  who  propose  to 
obtain  advances  from  a  bank  to  buy  cheese  and  butter  are  seldom  deficient 
in  this  respect,  either  as  to  the  article  or  the  markets.  But  a  banker  will 
require  to  be  particularly  well  satisfied  as  to  the  applicant's  capital;  for 
it  may  be  taken  as  a  rule,  in  this  line  of  business,  that  the  capital,  in  pro- 
port-on  to  the  advances  asked,  should  be  large.  The  fluctuations  in  prices 
are  sometimes  rapid  and  very  considerpble.*^  The  article  is  required  at 
times  to  be  held  in  large  quantities  and  for  long  periods,  ot  the  risk  of  the 
market,  and  there  are  not  many  facilities  for  rapid  selling  in  n  falling 
market,  whereby  men  may  escape  loss.  There  are,  too,  more  dangers 
from  the  Huetuations  of  the  seasons,  and  the  suitableness,  or  otherwise, 
of  the  article  to  the  market  it  is  bound  for. 

All  these  considerations  naturally  lead  up,  not  only  to  the  require- 
ment of  a  large  capital  in  the  borrower,  but  tliat  his  capital  should  be  in 
Some  available  shape,  in  case  of  a  bad  season,  unfavorable  markets  and 
loss  to  the  buyers. 

42  Bankers  lu  often  taught.  \<y  severe  experli-ncp.  how  dangerous  are  th« 
risks  Involved  in  ne  change  of  the  personnel  of  flrmt.  A  father  may  build  up. 
by  years  of  prudence  ond  honesty,  a  lucrative  and  prosperous  liuslness;  aons 
»row  up  who,  being  taken  into  partnership,  m.iy  destroy  the  work  of  a  lifetime 
by  a  few  years  of  Incaiiacity  and,  popslbly.  dl»li.>nes(y,  Yet  the  name  nf  the  firm 
may  be  the  same  as  before,  and  the  traditions  of  honorable  dealing  will  survive, 
although  the  foundation  for  it  has  disappeared. 

«  These  fluctuations  are  apt  to  appear  less  than  they  are.  owing  to  the  quo- 
tations for  cheese  and  butter,  even  in  the  wholesale  trade,  being  at  so  much  per 
pound.  The  rise  or  fall  of  a  cent  per  pound  sounds  like  .i  very  small  affair,  yet  It 
may  amount  to  as  much  as  ten  to  fifteen  per  cent.,  according  to  the  price  of  the 
article.  Thus,  If  a  merchant  Is  carrying  a  hea^T  winter's  stock  f.ind  such  stock* 
ore  sometimes  carried  of  a  value  of  two  or  three  hundred  thousand  dollars),  this 
seemingly  trifling  change  of  a  cent  per  pound  may  make  a  difference  of  twenty 
or  thirty  thousand  dollars  In  its  value.  The  changes  In  \-alues  in  this  trade  are, 
4n  truth,  heavier  than  in  the  fraln  trade,  and  need  more  constant  watching. 


108  BANKING   AND   COMMERCE. 

ThU  trade  is  one  giving  rise  to  large  amounts  of  i-xirarta,  ciprcinllv 
to  Great  Britain.  Tlic  consumption  of  cheese  is  much  larger  in  the  agri- 
cultural districts  of  loth  F.ngland  and  ."^cotlnnd  than  in  Canada  or  the 
United  States. 

The  cheese  trade  in  Great  Britain  is  in  mony  respects  ns  different 
from  the  grain  trade  »s  it  is  on  this  side  the  Atlantic.  It  is  not  so  rapid, 
so  changeable  or  so  speculative.  The  article,  moreoi  r,  ia  itself  n  finished 
product,  not  requiring  n  manufacturing  process  to  make  it  available.  It 
if,  therefore,  commonly  held  longer  in  stock,  and  as  it  cannot  be  held  i". 
ordinary  warehouses,  it  comes  about  that  merchants  in  Great  Britain  must 
more  commonly  ask  for  bills  of  lading  to  be  given  up  on  acceptance,  in 
order  to  remove  the  slock  to  their  own  warehouses.  To  this,  of  course,  the 
banker  must  consent  if  it  is  to  be  done  at  all;  but  bankers  on  this  side 
are  usually  ready  to  meet  the  views  of  thtir  customers  in  this  matter,  as 
the  persons  in  the  trade  on  both  sides  the  Atlantic  are,  as  a  rule,  men  of 
capital  and  standing,  and  t!ie  bill  will  have  two  presumably  good  names 
on  it,  even  when  the  bill  of  lading  has  been  given  up.  So  great  is  the 
confidence  between  one  merchant  and  another  in  this  trade,  that  it  has  not 
been  uncommon  for  parties  in  England  to  accept  bills  drawn  against 
goods  warehoused  on  thit  aide.  Experience,  however,  has  proved  this 
practice  to  be  exposed  to  peculiar  risks,  which  may  render  it  dangerous  for 
the  foreign  merchant,  and  unsatisfactory  for  the  Canadian  banker. 

The  Cattle  Thade. 

Passing  from  the  trade  in  dairy  products  to  the  trade  in  the  animals 
themselves,  we  enter  upon  another  set  of  considerations  altogether. 

Adiances  for  the  purpose  of  dealing  in  cattle  or  feeding  them  com- 
monly begin  with  loans  to  small  dealers  in  country  districts  who  gather 
together  small  lots  and  sell  them  to  large  dealers  or  distillers.  These  ad- 
vances are  usually  of  moderate  amount,  and  such  short  time  that  they  can 
be  reasonably  secured  by  an  endorsement  or  guarantee.  Such  sn-  .11  deal- 
ers, indeed,  arf  sometimes  ambitious  to  become  exporters,  but  bankers  arc 
usually  chary  of  encouraging  such  operations.  Small  dealers,  as  a  rule, 
have  neither  the  knowledge  of  foreign  markets,  nor  the  experience,  nor  the 
capital  necessary  to  do  this  successfully.  Tlieir  proper  business  is  to 
pass  on  the  animals  to  men  of  greater  weight. 

Of  tht'sc  some  of  the  most  prominent  are  Distillers.  T'lc  advances  to- 
distillers  for  the  purpose  of  feeding  cattle,  in  some  cases,  are  on  a  large 
scale,  and  continued  for  a  considerable  time.  They  are  commonly  se- 
cured by  the  pledge  of  the  distiller,  which  pledges  arc  of  a  much  safer 
character  than  any  others  handled  by  bankers;  the  reason  being  that  the 
animals,  having  once  entered  the  distillery,  are  never  removed  until  finally 
shipped  away.     An  inspection  of  them,  moreover,  is  perfectly  easy. 

When  ;iie  process  of  fattening  is  completed,  and  the  time  has  arrived 
for  shipping,  they  are  generally  sent  in  a  live  state  across  the  Atlantic. 
The  trade  of  shipping  live  cattle  across  the  Atlantic  is  a  development 


Si 


LOANS    TO    DEALERS    IN    GRAIN.  109 

of  rnwnt  .venre;  and  until  il  vns  l«-tl,r  undf.  tood  nnd  more  perfect  ship- 
ping facilitie.  were  devised  f-r  it,  it  „„  „lt,.„ded  with  heavv  easualtiel 
«ld  tones.  This  trade  is  no'  le  o.'  those  that  are  easv  to  'enter  upon 
None  but  men  who  are  fnmil...!-  with  cattle  ever  think  of  meddling  with 
.t.  It  has  been  proved  to  require  not  only  large  capital  and  thorough 
knowledge  of  animals,  but  (irsl-rate  arrnngoments  for  handling  cattle  in 
Greot  Britain.  Xnlurally.  it  is  a  far  more  difficult  business  to  handle 
live  animals  than  grain,  cheese,  or  pork.  The.v  ore  exposed  to  far  more 
«a8nall.es  both  from  cold  and  heal.  The  risks  of  land  transport  are  con- 
siderable, but  Ihr  risk  of  ocnn  transport  is  imniens.lv  greater  But  per- 
haps the  greatest  risk  of  all  is  in  the  hot  davs  of  summer  before  steamers 
are  well  out  at  sea.  The  risk.,  of  this  trade  are  considerably  augmented 
by  the  fact  that  the  c.iltle  cannot  be  held  in  an  English  [wrl,  or  sent  into 
the  interior.  They  must  be  sold  and  slaughtered  at  once,  be  the  market 
bad  or  good,  the  price  high  or  low.  II  is  evidentlv  a  trade  therefore  for 
men  of  large  means,  and  for  no  others. 

With  regard  to  security  for  the  loans  of  bankers,  the  pledge  of  the 
dealer  in  the  ease  of  live  animals  herded  or  .yarded  is  of  the  weakest 
quality,  theoretically,  for  it  is  obviously  more  easv  to  take  cattle  awav 
ftan  to  move  any  other  commodity.  The  ease  is  entirely  diHerent  with  the 
distiller,  for  the  caHle  in  his  byres  are  a  part  of  the  verv  machinery  of 
his  business.  He  could  not  take  them  awav  while  feeding  without  suf- 
fering heavy  damage.  But  the  cattle  dealer  can  make  away  with  his 
property  without  the  slightest  difficulty  if  he  chooses.  The  animals  can 
walk  off  by  thimselves,  and  need  neither  trunks,  wagons  nor  carts  to 
transport  them. 

Yet  this  cattle  trade  is  one  of  the  most  important  that  Canada  has- 
and  with  the  development  of  the  Northwest,  with  its  great  stretches  of 
ranches,  is  becoming  increasingly  so.  And  in  the  hands  of  men  with  ade- 
quate capital  and  knowledge,  it  may  be  conducted  as  safelv  as  any  other 
branch  of  export  business.  But  woe  to  the  men,  or  firms,  that  plunge  into  it 
without  these  requisites,  or  to  the  unfortunate  banker  who  is  beguiled  into 
lending  them  mone.v.  And  one  consideration  will  be  found  by  bankers 
to  be  fundamental,  never  to  make  advances  or  buy  bills  against  cattle 
Jhipped  in  winter. 

Pork  and  Provision  Trade, 
In  this  trade  the  animal  itself  is  never  exported.  But  Canada  carries 
on  a  very  large  business  in  its  products,  and  some  of  them,  namely,  ham 
«nd  bacon,  are  figuring  heavily  in  our  list  of  exports.  The  trade  is  dif- 
ferent from  that  in  grain  or  cheese  in  this  respect,  that  the  portions  of  the 
ilaughtered  animals  undergo  3  change  before  being  sold.  This  can  :  ardly 
be  called  a  mannfactarmg  process,  being  merely  salting  and  curing,  for 
which  reason  it  is  not  dealt  with  under  the  head  of  loans  to  manufaclur- 
<rs.  Yet  the  packing  of  pork  (for  the  operation  goes  by  this  name)  is  a 
large  and  important  industry,  carried  on  in  costly  establishmenU,  full  of  a 
valuable  plant,  requiring  large  capital  to  carry  them  on. 

At  the  very  outset  the  question  arises,  when  considering  loans  for  this 


BANKING    AND    COMMERCE. 


bniineis.  at  what  point  bank  advAncei  may  be  reasonably  asked  for,  and 
the  aniwer  must,  of  course,  be  given,  as  in  nnalogoui  cases,  that  the  fac- 
tory should  be  completed  and  paid  for,  before  a  banker  is  approached. 
This  circumstance  will  be  in  itself  a  guarantee  of  the  borrower  possess- 
ing considerable  capital.  But  to  be  a  satisfactory  customer  to  a  bank  he 
certainly  ought  to  have  more  than  this;  viz.,  as  much  more  as  would 
enable  him  to  provide  ngninst  the  losses  of  an  unfavorable  season  without 
mortgaging  his  property. 

In  this  trade  security  offered  to  a  banker  is  almost  invariably  a  pledge 
of  the  newly-slaughtered  animal:  the  law  allowing  the  pledge  to  subsist 
during  the  process  of  converting  it  into  pork,  ham,  o.*  bacon,  and  attach- 
ing to  the  finished  product. 

Again  must  be  emphasized  the  importance  of  a  continuously  good" 
record  to  every  member  of  a  borrowing  firm,  both  at  the  time,  and  as  it 
may  be  subsequently  changed  by  the  entrance  of  other  partners.  It  is- 
far  more  difficult  for  a  banker  to  judge  of  the  value  of  his  security  in  this 
business  than  in  ony  of  the  foregoing.  And  there  are  hindrances  in  the 
trade  itself. 

Pork  packing  is  a  different  trade  from  the  curing  of  hams  and  bacon. 
Barrelled  pork  is  essentially  for  the  home  market,  being  the  staple  food 
of  lumber  camps.  In  centres  like  Chicago,  barrelled  pork  is  <''  :n  spec- 
ulated in;  "comers"  are  made  in  it,  and  the  fluctuations  in  its  price  are 
heavy.  There  is  the  same  reason  as  in  the  grain  trade  for  a  banker  ta 
beware  of  his  advances  being  used  to  put  up  a  margin.  No  advancet 
in  this  business  can  be  considered  safe  unless  to  men  of  solid 
temperament  and  judgment,  whose  capital  is  large  in  proportion  to  their 
business — and  who  understand  well  both  the  article,  the  process,  and  the 
markets. 

The  export  of  hams  and  bacon  to  Great  Britain  has  now  attained  large 
dimensions,  and  is  subject  to  the  same  conditions  as  pertain  to  other 
branches  of  the  export  trade.  It  requires  good  connections  on  the  other 
side  of  the  Atlantic;  it  should  be  conducted  on  the  principle  of  purchase 
and  sale,  and  not  of  consigning ;  for  it  cannot  be  too  often  repeated  that 
consigning  is  the  road  to  ruin  in  this,  as  in  every  other  branch  of  the 
export  business. 

As  in  other  branches  of  production,  the  maker  of  hams  and  bacon  will 
find  it  highly  conducive  to  profit  to  establish  a  name  for  his  article,  as 
Armour  &  Co.  of  Chicago  have  done. 

The  special  danger  to  bankers,  in  this  line  of  business.  Is  that  the 
packer's  building  and  plant  may  not  be  kept  abreast  of  modern  improve- 
ments; also  that  changes  in  the  fini  may  deteriorate  it,  new  members 
not  having  the  same  ability  as  the  old,  competent  and  able  fathers  being 
succeed  by  incompetent  sons.  (The  latter,  however,  is  not  peculiar  to  the 
pork  trade.) 

Hides  and  Wool. 

The  last  branch  of  agricultural  products  to  be  noted  is  the  trade 
in  hides  and  wool,  these  generally  going  together.     This  tr&de,  like  the 


LOANS  TO  DEALERS  IN  GRAIN. 


foregoing,  hm  its  p«ullnrili<i,  ;ind  spooinl  soiircci  of  riik  and  danger. 
Hidti  and  wool  are  article!  that  only  oxptrts  ran  deal  in,  for  no  out- 
•ider  ean  poiiiblv  tell  the  value  of  a  given  quantity  of  either  of  them. 
There  are  in  thii  trade,  ai  in  the  othcra,  imall  dealers  and  large— the 
men  who  gather  up  tmnll  lots  in  the  country,  and  the  men  who  have 
large  wholesale  dealings  in  the  city.  .\nd,  as  j.i  other  branches  of  trade, 
the  small  denier  is  souirtimrs  too  ambitious  for  his  means  and  experience, 
and  too  desirous  to  enter  upon  operations  that  he  has  neither  the  capital 
nor  the  ability  to  carry  on. 

Bankers  cannot  do  a  greater  service  to  a  man  of  this  class  than  to 
refuse  to  lend  him  suras  of  money  large  enough  for  wholesale  operations; 
for  it  is,  in  truth,  often  learned  at  a  bitter  cost,  that  many  a  man  i  i  trade 
has  been  mined  by  having  too  free  a  use  of  money,  loaned  him  '  com- 
pliant banker. 

The  trade  in  hides  and  wool  provides  raw  material  for  two  important 
lines  of  manufacture;  vis.,  woolen  mi,l»  and  tanneries.  In  both  of  these 
much  of  the  raw  material  is  produced  in  foreign  countries,  and  the  large 
merchants  in  wool  and  hides  become  importers  from  Australia  and  South 
Africa.  To  carry  on  these  operations  the  banker  is  asked  to  issue  to  his 
customer  letters  of  credit  authorizing  their  correspondents  to  draw  upon 
a  bank  in  London,  for  the  value  of  the  wool  or  hides  shipped,  attaching 
bills  of  lading  and  policies  of  insurance  thereto.  The  issuing  of  such 
letters  of  credit  is  a  special  branch  of  a  banker's  businesi  both  in  Canada 
and  in  the  United  States  and  is  treated  of  subsequently.  Its  special  ad- 
.antages  and  risks  are,  there  completely  opened  up;  meanwhile,  it  is 
sufficient  to  say,  that  nc  auiall  dealer  should  ever  be  encouraged  to  enter 
upon  this  line  of  operations  For  the  losses  of  a  single  unfavorable  sea- 
son might  sweep  away  all  he  had. 

Merchants  in  hides  and  wool,  in  large  cities,  applying  for  advances, 
generally  offer,  as  in  other  cases,  warehouse  receipts  as  security.  And 
here  again  they  will  desire  that  the  goods  shall  be  stored  in  their  own 
warehouses,  for  the  reason  that  goods  require  to  be  handled  during  the 
progress  of  warehousing.  This  may  be  conceived  of  as  an  element  of  risk, 
and  so  it  is.  But  it  may  be  taken  as  a  gener-I  rule,  that  unless  a  banker 
ean  trust  his  customer  so  far,  he  ought  not  to  advance  him  anything  at 
all  on  his  own  pledge. 

As  the  articles  dealt  in  by  men  in  this  trade  are  the  raw  material  of 
manufacturers,  they  come  under  that  general  law,  applicable  to  all  such 
eases,  that  raw  materials  should  not  be  sold  on  credit.  Every  manufac- 
turer should  have  capital  (or,  at  any  rate,  credit)  enough  to  enable  him 
to  pay  cash  for  his  raw  material.    And  this  is  almost  universally  the  case. 

Canadian  dealers  export  large  quantities  of  home-grown  wool  to  manu- 
facturers in  the  United  .States.  They  also  sell  to  si'ch  manufacturers  con- 
siderable quantities  of  wools  imported  from  abroad  under  letters  of  credit, 
These  are  entered  in  American  ports.  But  it  is  a  dangerous  experiment 
to  give  time  to  manufacturers,  on  such  goods.     Though  they  may  be  re- 


^11 


^^1 

3i 

BANKING  AND   COMMERCE. 


ported  in  high  crrdit  and  poMetted  of  Inrge  capital,  the  terg  fact  of  tktir 
tuking  credit  Mhould  he  the  reaton  for  rtfuttHg  i/. 

Hay. 

The  growing  of  hay,  in  Kome  dintricta  of  Canada,  forms  an  important 
part  of  a  farmer'i  oprrntions.  But  the  hay  crop,  though  of  very  great 
value,  seldom  calls  for  l>ank  advanrei  to  any  extent.  Farmers  use  much 
of  it  themiclves.  A  good  part  of  the  rest  is  handled  by  small  dealers 
scattered  through  the  country  districts.  The  article  is  too  bulky  to  be 
gathered  into  warehouses;  but  coniidcrsblc  quantities  are  sent  over  the 
border,  into  the  United  States.  Banking  trnnanctions  arising  from  the» 
are  almost  universally  in  the  shape  of  sight  drafts,  with  bill  of  lading 
attached-  Occasionally,  however,  when  the  hay  crop  is  a  bad  one  in  Eng- 
land, owing  either  to  rain  or  drought,  a  demand  sets  in  from  that  quarter 
to  Canadian  dealers.  In  such  circumstances,  a  large  and  active  trade  hni 
been  done.  It  is  a  trade  that  involves  unusual  trouble  in  handling,  and 
merchants  in  large  centres  do  not  care  to  meddle  with  it  But  exporting, 
as  hai  been  said  already,  is  a  business  by  itself;  and  country  dealers,  in 
venturing  upon  the  export  of  hay^  have  sometimes  brought  infinite  trouble 
upon  themselves,  their  correspondents  in  Great  Britain,  and  also  upon 
London  bankers.  Although  the  difference  in  price  paid  to  the  Canadian 
farme**  and  the  price  as  quMed  in  England  is  unusually  great,  and  seems 
to  give  opportunities  for  large  profits,  the  multiplied  cost  of  freight  by 
land  and  water,  added  to  the  cost  of  warehousing,  wharfage,  demurrage 
and  commissions  in  England,  generally  swallows  up  this  difference.  Some- 
times, as  a  matter  of  fact,  they  do  much  more,  and  involve  tlie  Canadian 
shipper,  and  sometimes  his  banker,  in  heavy  losses. 

It  has  been  known  that  in  an  active  season  enormous  "luantities  of 
baled  hay  have  been  lying  about  on  the  wharves  and  docks  of  England 
for  weeks  together.  The  risk  of  this,  in  that  climate,  may  be  Imagined. 
It  has  also  happened  that  canal  boats  loaded  with  Canadian  hay  have 
been  held  under  demurrage  for  many  consecutive  weeks,  at  enormous 
cost,  owing  to  the  refusal  of  purchasers  to  receive  the  goods  and  accept 
bills  drawn  against  them.  In  that  case  it  has  happened  that  scores  of 
bills  have  lain  unaccepted  in  the  London  banks,  to  whom  they  were  sent 
for  collection;  and  that  the  hay,  when  brought  to  forced  sale,  did  not 
realise  a  half,  or  even  a  quarter,  of  what  was  drawn  against  it. 

It  may  \k  oncluded,  therefore,  that  no  Canadian  banker  will  in  future 
make  advances  to  any  country  dealer  for  the  purpose  of  buying  hay  for 
export.  And  if  bills  drawn  against  hay  shipped  across  the  Atlantic  are 
offered  him,  he  will  prefer  to  make  a  moderate  advance,  and  send  them 
on  for  collection. 

Of  all  the  various  descriptions  of  advances  referred  to  in  this  chap- 
ter, there  is  one  thing  to  be  said  that  admits  of  no  exception;  vis.,  that 
they  should  be  paid  off  ftt  the  end  of  every  season.  On  no  account  should 
one  season's  advances  ever  run  into  another. 


CHAPTF.K  Xri. 

LOAMa  TO  KANurAonntnta  amd  ikpoetiba 

LoAMi  10  M  NUf*cTO»i»i  or  TlMum,  anb  Saw  Millihi— Loahi  to 
Fiom  Mii.i.n>— Loam  to  Cotton  and  Woolin  MANurACTuuu 

AND  WhOUIALI   iMrOITCM. 

Although  the  oper«tion  of  culUng  down  the  foreilt  of  Canada 
■i-  »■  nnd  turning  the  fallen  lree<  Into  timber  by  hewing,  or  into  lumber 
by  uwing,  is  not  generally  ealled  manufaeturing,  it  will  now  be 
treated  ai  luch,  inaimueli  as  both  are  carried  on  with  plant,  machinery 
and  tools— the  last  especially.  The  operations  of  the  timber  and  lumber 
men  of  Canada  hove  been  very  dilTerent  from  those  of  the  settlers  who 
cleared  the  forest  for  the  purpose  of  creating  farms.  For  in  the  latter 
case  the  trees  were  absolutely  destroyed:  in  the  former,  they  were  pre- 
served a>  the  raw  material  of  manufacturing  operations.  No  lines  of 
business  have  colled  for  such  heavy  advances  from  banks,  and  -lone  have 
gi>en  rise  to  such  large  amounts  of  inland  and  foreign  bills  of  exchange 
as  those  now  to  be  considered. 

These  two  divisions  of  manufacture  are  so  distinct  from  one  another 
that  they  require  seporatc  treatment;  the  only  (mint  in  which  thev  coin- 
cide being  thai  both  require  large  tracts  of  timbered  lai  d,  sometimes  ei- 
tcnding  over  thousands  of  square  miles,  from  which  to  draw  the  raw  mote- 
rial  for  their  operations. 

The  <irst  in  order  that  will  be  token  up  Is  the  manufocture  of  square 
timber.  In  this  trade,  as  in  some  previously  mentioned.  Hiere  are  found  in 
co-operaHon  two  classes  of  men,  the  one  consisting  of  small  jobbers,  and 
the  other  of  large  operators.  The  «rst  generally  confine  I  heir  labors  to  a 
small  piece  of  fowst  territory,  employing  a  few  hewers  and  choppers  on 
their  own  account;  having  in  view  the  delivery  of  the  product  to  some 
great  firm  at  a  central  p6inl,  and  working  in  subordi.  ation  to  it.  These 
jobbers  are  often  half  farmers  and  half  woodsmen;  fanning  in  the  sum- 
mer, and  working  in  the  woods  in  the  winter;  good  judges  of  trees  by 
long  eiperitnce,  and  gentrally  men  of  intelligence  and  reliability,  not 
having,  as  a  rule,  much  capital  of  their  own,  but  being  generally  safe  bor- 
rowers. Advances  to  these  men  are  of  moderate  omount;  for  no  banker 
would  listen  to  an  application  from  a  jobber  for  such  an  amount  as  would 
enable  him  to  send  the  product  to  n  dist.int  market,  and  compete  with  the 
larger  men  of  the  trade. 

Such  jobbers  carry  on  work  during  the  winter;  delivering  their  prod- 
uct and  get*'  g  paid  for  it  in  the  spring.    Then  they  pay  off  advances. 

Sometii..,;8,  however,  the  banking  operation  is  different.     The  large 
operator  may  have  a  sufficient  capital  to  supply  these  men  with  money  as 


114 


BANKING    AND   COMMERCE. 


the  work  gmt  on,  nnil  alto  to  supply  thrm  with  the  proviiioni  nerdrd  tn 
their  rnmpM  In  the  wmidc-  Or  be  miijr  havr  credit  enouKh  with  the  bank 
to  enable  him  to  borrow  money  for  the  purpoie. 

In  thii  eaic  he  will  enable  the  Jitbber  to  obtain  moner  from  the  bank 
by  becoming  guarantor  for  hit  advanrt-i.  Theae  advances  are  of  courae 
paid  by  the  large  operator  when  the  loti  of  timber  made  by  ttie  jobber  are 
deliverrd.  But  a  large  ofM-rator,  in  addition  to  the  luppltrt  of  timber  that 
thrie  jobbert  may  proriirt-  for  him.  will  gem-rally  employ  nitmbert  of  men, 
icatterrd  over  a  wide  rxtent  of  Irrritnry,  to  rhop,  hew,  and  haul  thr  tree* 
on  hit  own  account.  The  opcrntionii  by  which  thete  tcattf-red  tott  of 
timber  are  Hnatrd  down  tubtidiary  Htrtnint  into  n  main  rivi-r  like  the 
Ottawa,  and  then  down  the  St.  I.nwrfncr  into  the  covet  of  Quebec,  the 
great  emporium  of  the  trade,  are  well  known  in  Canada,  It  mutt,  how- 
ever, be  evident  that  a  large. amount  of  money  requiret  to  be  ditburttrd  be> 
fore  the  timber  can  finally  be  placed  on  boanl  thip,  and  foreign  bills  of 
exchange  drawn  againit  it.  Thit  money  for  the  mott  part,  from  the  very 
beginning,  hat  been  obtained  by  advances  from  banki. 

An  unusually  large  capital  is  required  to  carry  on  these  operations,  for 
the  timber  growing  on  these  tracts  of  territory  must  be  owned  by  the  mer- 
chant before  a  tree  can  be  cut  down.  The  land  on  which  the  timber 
grows  is  rarely  valuable  ftr  settlement.  And  the  timber  merchant  does 
not  care  for  the  freehold  of  the  land  at  all.  What  he  want  -  (•  "  -  trees 
that  are  growing  upon  it. 

A  systtm  has  therefore  grown  up  by  which  the  right  of  cutting  trees 
over  de6ned  lines  of  territory  is  told  to  operators  under  the  name  of 
limits.  Thetc  "limits"  are  simply  licenses  to  cut,  renewable  on  payment 
of  ground  rent  year  by  year.  Yet  to  well  established  has  the  t/stem  of 
renewal  become  that  they  are  highly  valuable  property,  and  constitute 
in  many  catei  a  large  part  of  the  capital  uf  many  wealthy  firms. 

Before  applying  to  a  banker  for  advances  for  a  season's  operations, 
it  is  usual  for  firms  to  own  their  limits  ab  lutcly,  and  to  have  paid  for 
improvementt  on  them,  such  as  dams,  slidet  and  water-ways. 

The  operations  of  a  woodsman  require  to  be  carried  on  for  nearly 
twelve  months  before  the  timber  in  ready  for  market.  Advances  to  such 
firms  are  therefore  necessarily  as  long,  and  once  entered  upon  they  cannot 
be  stopped.  To  stop  advances  when  the  whole  floating  assets  of  a  timber 
firm  are  in  the  shape  of  half-hewn  trees  lying  scattered  over  hundreds  of 
miles  of  territory,  would  be  disastrous  on  both  sides.  Bankers,  therefore, 
are  in  the  habit  of  considering  the  situation  well  before  consenting  to 
allow  inch  advances  to  begin.  And  this  consideration  embraces  not  only 
the  points  common  to  all  lines  of  business,  such  as  capital,  experience, 
and  reliability,  together  with  the  security  ofl"ered,  but  whether  the  bank 
can  afford  to  carry  such  large  loans  for  so  long  a  period  at  all. 

But  when  a  banker  is  satisfied  that  he  can  afford  to  make  advances  for 
io  long  a  period,  he  will  consider  whether  the  amount  desired  is  reason- 
able in  proportion  to  his  customer's  capital,  and  the  extent  of  the  yeac's 


oiire 
illl 


LOANS  TO  JIANUFACTUHEHS  AND  IMPORTERS.       lu 

oprratloni.  Every  llmbrr  nuikrr  hy,  out  I.U  pl.n.  .  vc.r  beforrhnMil,  to 
gtt  out,  i»  It  I.  <.»l|c.l,  n  crrtnln  quiinlll.y.  U|«>n  thii  U  Uwd  the  number 
of  nirn  »n.l  horn.  »  nt  inlu  (l,r  wa,<d,.  niul  Ihr  •uppli..  ,.f  l„o.l  nnd  I'ikI- 
der  provl.  .1.  Thv  .niml«  r  of  .1,IkIi.,  w,ik""".  oniim,  nnd  otlur  rrquMIn 
nrrd.  to  ..  carrfully  enUnlnt, rt ;  in  f»cl.  tli.^  wintiri.  o|«Mti„ni  ,.f  - 
tl,nb,T-u»,k,T  In  til.-  wm«l,  ,„r  „f  ll,r  „„|„r,.  of  „n  ,  x,»dlllon.     l-or  on 

d.i|»r«d  nm.,n|i,t  ll„  ir  camp.  In  Ihr  forr.t,  tli.r,'  lh.v  t  nnmln  uiil 

the  iprlnK. 

Till-  tlinlHr-nink.r  will  inform  hi.  hnnlc.T  whnl  h,.  Int.nd.  l.>  do:  ;ind 
the  luinkir  will  doulitl.,.  hnvi-  linrnrd  <  nou^ll  to  ..tini.nl.-  how  much 
momy  will  I,.-  nquinil  to  .■.„ry  liim  thrnugh.  It  ,„„,.  h.-  l„k.n  lor  grant- 
ed thnt  the  l„rrow,r  undrr.tmid.  the  Irnde,  for  no  uinn  eould  e-irrv  it  on 
for  n  month  unlms  he  did. 

ChoMctrr  nnd  nlinbilily  »|||  l,e  eon.id.Tfd  «,  u>unl.  But  in  the 
ninller  of  enpitnl  wide  dlir.r.ne.-»  will  he  found.  .Xonie  of  the  wenllhi, ,t 
firm,  thnt  fnnnd,.  In.  known  Iwve  Iwen  nhle  to  earry  on  the  o,«.rntion. 
ol  n  whole  .euon  involvinx  imnHn,e  di.bur«'ioent>  without  liorrowinit 
at  all.  '^ 

But  at  Ih.  other  end  of  the  .eale  are  men  of  eapneitv  and  eharaet,  r 
who  have  barely  capital  enough  to  own  their  limits.  Tin'.,  however  i»  a 
miniimim  requirment.  T.i  make  advance,  to  a  timUr-maker  while  .'ome- 
one  el.e  ha.  a  claim  on  hi.  limit,  i.  a  very  ra.h  prooediug,  and  ha.  led 
during  had  ,,a.on.,  to  heavy  Iwnk  l,.„e..  .\  l,..,.k,.r,  nnd.r  all  eircura-  ' 
•tanee.,  will  aim  to  be  the  (ir.t  claimant;  never  the  sei-onil. 

Limit,  can  be  ai.igm'd  to  a  bank  as  .ecuritv.  a.  tliev  are  not  real 
e.tat,'.  They  pncrally  are  .o  a..igned.  .\nd  verv  good  .eeuritv  they 
generally  prove,  if  valued  with  reasonable  core. 

Bi.K.  TO  Bl'  Taken  i.sto  .\ccou.st. 
But  in  addition  to  limit.,  the  piece,  of  timlK-r  tlleln.,lve.  can  Ih-  a.- 
.igned,  nnd  .|R-eial  legislation  ha.  been  devised  for  the  purpose.     They 
are  always  .tamped  with  a  regi.tered  mark,  and  oeca.ionallv  a  bank  wil'l 

have  tlum  marked  on  its  own  account.     It  i.,  however,  almost  i card  of 

that  a  bank  should  lose  it.  hold  upon  the  timb.-r,  or  fail  to  receive  the  pro- 
ceed, when  sold.  The  risk,  lie  in  another  direction,  vii.,  that  the  piece, 
.hall  .tick  f.-„t  in  .nbordinnte  streams,  or  In-  carried  nwnv  hv  flood,  on  the 
larger  one.,  both  involving  the  danger  thnt  mnnv  of  them"  will  never  be 
recovered,  or  that  the  expense  of  recovering  them  will  destroy  the  eliance 

of  proht.     Then-  so  the  risk  of  a  fall  in  the  British  mirket  during 

the  long  period  of  work  in  the  woods  and  of  driving  to  Quebec.  A  drop 
in  the  price  ha.  Ixen  known  of  so  serious  a  character  as  not  only  to 
de.troy  the  chanc-  of  profit,  but  the  possibility  of  reali.ing  anything  near 
cyen  the  cost  of  the  article.  Hence  it  is  that  banker,  require  to  be  satis- 
tied  beforehand  of  the  ability  of  their  enstmmr  to  bear  :,ueh  reverse. 

In  this  branch  of  trade  there  i.  usually  a  distinct  line  of  demarcation 
between  the  producer  and  the  exporting  merchant.     The  producer  rarely 


116 


BANKING   AND    COMMERCE. 


exports  liis  product;  in  fnct,  when  he  does  so,  the  result  is  not  alwayi 
satisfactory.  And  the  banker  has  something  to  say  to  this  also;  \\v  has 
carried  the  risks  of  the  producer's  operations  for  twelve  months,  and  it  is 
time  that  they  should  end.  For  undoubtedly  a  new  line  of  risks  begins 
when  timber  is  shipped  across  the  ocean.  To  whatever  market  destined, 
whether  to  Orent  Britain,  or  to  the  Continent  of  Europe,  or  any  other 
market,  the  trade  assumes  an  entirely  new  aspect  when  once  the  timber 
is  placed  on  board  ship  for  transport  across  the  sea.  Before  that  is  done. 
the  man  who  has  produced  it  and  carried  it  through  all  risks  of  navigation 
to  a  seaport  has  a  right  to  be  paid  for  it,  and  thus  have  the  means  of 
recouping  his  banker. 

With  respect  to  bills  .-irising  out  of  the  export  of  tiraWr  a  practice 
has  grown  up  which  is  peculiar  to  this  trade.  Every  timber  house  in 
Canada  has  usually  some  corresponding  hmise  in  Great  Britain  on  whom 
it  draws  Sometimes  these  houses  are  merchants  of  large  capital  in  the 
seaports  of  Great  Britain.  Sometimes  thry  are  branches  of  the  Canadian 
house,  sometimes  they  are  London  bankers.  To  these  correspondents 
the  bills  of  lading  are  remitted;  but  the  bills  of  exchange  arc  drawn 
M-ithout  reference  to  them.  When  such  bills  were  accepted  by  a  diflFcrent 
corresponding  house,  they  could  stand  on  the  merits  of  both  drawer  and 
drawee.  But  when  the  corresponding  house  was  a  branch  of  the  other, 
the  bills  stood  upon  the  merit  of  the  drawer  alone.  In  this  ease,  it  was 
for  the  hanker  to  have  thorough  and  up-to-date  information  of  what  the 
two  branches  of  the  house  were  doing.  Casualties  in  this  line  of  business, 
however,  h.ave  not  been  frequent.  Only  seldom  in  a  quarter  of  a  century 
has  there  occurred  a  failure  on  this  side  the  Atlantic,  and  rarely  indeed  on 
the  other,  unless  the  English  merchant  had  engaged  in  speculations  for- 
eign to  his  business. 

Saw  Milt.ino. 

Though  the  operations  of  the  timber  merchant  and  saw  miller  both 
commence  by  hewing  down  the  trees  of  the  forest,  there  is  a  marked  dif- 
ference in  subsequent  developments.  The  squaring  of  trees  in  the  woods 
is  a  simple  process,  after  which  they  only  require  transportation  to  mar- 
ket. But  lumber  and  deals,  in  addition,  need  for  their  production  an 
elaborate  manufacturing  process,  carried  on  in  expensive  mills,  filled  with 
costly  jtlant  and  machinery. 

But  larger  and  finer  trees  are  required  for  timber  than  for  the  others. 
There  is  a  difference  also  in  several  respects  between  the  manufacture  of 
dials  and  lumber,  the  principal  being  that  they  are  intended  for  different 
markets. 

Deals  are  wholly  exported  to  Europe,  while  lumber  is  manufactured 
for  the  Canadian  and  I'nited  States  market.  Deals  are  much  fine.-  and 
more  costly  articles  than  lumber,  requiring  finer  logs  for  the  raw  material 
and  a  more  valuable  kind  of  trees.  Deals,  moreover,  are  cut  in  pieces  of 
three  inches  in  thickness,  while  the  standard  thickness  of  lumber  is  one 


LOANS  TO  MANUFACTURERS  AND  IMPORTERS.   117 

inch.  Thus  it  -••n  almiii  th.it  ,.  „  gjvcn  range  of  forest  terrilory,  th" 
selection  is  mn.  ■  at  tli,-  fiiiisl  I-  cs  for  timber,  of  trees  of  the  second 
quality  for  liea    ,  .1  hI  of  tlie  tlv  i  for  sowed  lumber. 

But  of  all  tl  e  .1-  tl  rn-  tliere  are  many  varieties,  involving  great  dilTer- 
enees  in  value.  Only  a  prneiued  expert  can  judge  rightly  of  such  dif- 
ferences, and  it  is  largely  in  the  knowledge  of  what  will  be  the  best  use 
to  make  of  certain  trees,  so  as  to  get  the  best  possible  value  out  of  them, 
that  a  surcessful  carrying  on  of  the  business  of  a  lumberman  depends. 

With  regard  to  ihe  mill  itself,  where  the  operation  of  manufacturing 
is  carried  on,  great  and  irretrievable  mistakes  have  at  times  been  made, 
occasioning  ruin  to  the  operator  and  loss  to  his  banker. 

A  mill  may  be  built  in  the  wrong  place,  as  respects  water  power,  con- 
venience of  receiving  logs,  or  shipping  lumber,  or  it  may  be  built  in  too 
expensive  a  fashion  for  the  work  it  has  to  do,  or  it  may  be  fitted  up  with 
inferior  plant  and  machinery.  Hence  the  importance  of  a  saw  miller  hav- 
ing a  practical  knowledge  of  machinery  and  also  the  faculty  of  using  it 
profitably,  as  has  already  been  shown.  From  all  these  considerations  it 
will  be  evident  that  more  capital  is  required  in  the  saw  milling  business 
than  in  that  of  the  making  of  timber;  practically  just  so  much  more  as 
is  required  to  bnild  and  equip  the  mill  and  the  adjoining  storage  grounds. 
In  nearly  all  other  respects  the  conditions  are  the  same. 

Mills  Should  Not  Be  Encumbered. 
Now,  when  a  banker  comes  to  deal  with  the  account  of  a  saw  miller 
it  is  obvious  that  the  first  condition  is  that  the  fixed  property  shall  have 
been  paid  for,  both  the  mill,  and  the  timber  limits.  But  if  an  exception 
may  be  made  in  cither  case,  it  should  certainly  not  be  in  favor  of  the 
mill.  A  lumberer  whose  saw  mill  is  not  free  from  incumbrance  is  not  in 
a  position  to  ask  advances  from  a  bank.  Limits  are,  as  a  rule,  much 
more  salable  than  saw  mills;  and,  moreover,  a  bank  can  take  securitT  on 
them  at  any  time. 

But  now,  supposing  this  preliminary  to  be  as  it  should  be,  the  saw 
miller  desiring  advances  will  state  the  quantity  of  lumber  he  is  proposing 
to  manufacture  for  the  season.  If  the  trade  is  brisk,  demand  strong,  and 
profit  good,  he  may  determine  to  nm  his  mill  to  its  utmost  capacity,  and 
work  it  night  and  day.  If  the  trade  is  dull  and  demand  slack,  he  will  no 
doubt  be  wise  enough  to  run  his  machinery  moderately.  The  banker  (op 
his  board  of  directors)  will  doubtless  know  sufficient  of  the  conditions  of 
the  trade  to  judge  which  of  the  two  courses  i.  more  prudent,  and  regulate 
advances  accordingly. 

The  security  taken  will  probably  be  the  same  as  in  the  timber  trade- 
namely,  a  transfer  of  the  limits  and  a  pledge  of  the  logs  and  their 
product 

In  this  trade,  unlike  that  in  timber,  the  banker  requires  to  look  nar- 
rowly after  insurance.  In  the  square  timber  trade  no  insurance  is  ever 
required,  for  the  article  is  never  out  of  the  water.    But  saw  mills  and  Inm- 


\m 


BANKING   AND   COMMERCE. 


bcr  are  terribly  inflammable  articles,  nnd  in  a  large  concern  insurance  to 
the  amount  of  hundreds  of  thousands  may  be  necessary  to  safety. 

All  advances  to  lumberers  and  timber-makers  should  be  made  gradu- 
ally, as  the  season  advances,  and  as  more  and  more  money  requires  to  be 
spent  on  the  article  to  bring  it  to  a  salable  condition.  If  they  are  asked 
for  otherwise,  there  is  reasonable  suspicion  that  they  may  be  used  to  pay 
antecedent  debts. 

When  the  lumberman's  stock  is  in  a  finished  condition,  a  distinction 
arises  between  its  two  varieties,  viz..  lumber  and  deals.  Tlie  saw  miller 
sells  his  deals  for  export  to  Europe.  They  go,  therefore,  to  an  Atlantic 
seaport,  and.  as  a  rule,  they  are  purchased  by  a  merchant  of  the  iwrt.  It 
has  been  customary  for  such  merchants  to  give  their  acceptances  in  pay- 
ment to  the  manufacturer;  but,  considering  the  very  large  sums  such  ac- 
ceptances amount  to,  it  has  been  common  for  a  lien  on  the  property  to  be 
held  by  the  seller  or  his  banker  until  the  acceptances  were  paid. 

The  manufacturer  of  sawed  lumber,  as  distinguished  from  deals,  has 
always  found  his  principal  market  in  the  United  States.  It  is  here  per- 
haps more  than  in  any  other  product  that  the  interdependence  of  the  two 
countries  has  been  manifest.  Canada  in  proportion  to  her  population  has 
always  had  far  more  forest  area  than  the  adjacent  States;  hence  it  came 
about  naturally  that  the  lumber  mereli.iuts  of  the  latter,  from  an  early 
period,  looked  to  Canada  as  a  market  of  supply.  In  many  cases  they 
formed  permanent  connections  with  the  saw  millers  of  the  North,  making 
nrrangenients,  not  seldom,  to  buy  the  whole  product  of  certain  mills  at  a 
schedule  of  prices  agreed  upon.  Bankers  therefore  who  kept  the  accounts 
of  saw  millers,  would  have  the  acceptances  of  such  houses  offered  for  dis- 
count and  naturally  became  interested  in  their  means  and  standing.  For 
the  discount  had  to  rest  on  the  credit  of  the  parties  to  the  paper,  inas- 
much as  it  was  impossible  for  a  Canadian  banker  to  maintain  a  lien  upon 
an  article  like  lumber  after  it  had  passed  beyond  the  borders  of  his  own 
country. 

The  lumber  trade  of  the  Northern  States,  with  a  few  striking  excep- 
tions (one  of  them  hereafter  noticed),  has  for  a  long  period  been  in  the 
hands  of  firms  of  tried  character  ond  sufficient  means,  not  to  speak  of 
others  of  large  wealth.  This  class  of  discounts  has  been  subject  to  few 
casualties  and  has  always  been  looked  on  with  favor.  One  reason  for  this 
is  that  there  is  no  speculative  element  in  the  trade,  though  it  is  subject 
to  cycles  of  good  and  bad  years,  generally  about  five.  The  changes,  how- 
ever, either  in  the  way  of  improvement  or  deterioration,  proceed  slowly, 
and  there  is  ample  time  for  operators  to  prepare  for  changes,  either  by 
curtailment  of  business  or  enlargement,  as  circumstances  call  for  it 

The  bad  years  in  the  trade  are  generally  extremely  trying,  involving 
not  only  the  doing  of  business  without  profit,  but  the  carrying  it  on  at  a 
loss  for  years  together. 

Yet  the  bw-niness  has  wonderful  recuperative  powers.  At  the  end  of  a 
cycle  of  bad  years  it  sometimes  appears  to  be  so  prostrate  as  to  be  incapa- 


LOANS  TO  MANUFACTLHERS  AND  IMPORTERS.     119 

blc  of  revival.  Not  only  the  lumber  itself,  but  all  Hint  goes  to  produce  it 
•terns  to  have  Iwt  its  value.  Mills  and  limits,  but  especially  the  latter 
become  sueh  a  drug  in  the  market  as  to  become  practically  worthless  Such 
times  as  these  try  the  faith  and  courage  of  a  banker  sorelv.  But  if  he  is 
unwise  enough  to  bring  a  customers  account  to  a  close  at  s'uch  a  time,  and 
•ell  his  property  at  a  price  which  results  in  a  heavy  bad  debt,  he  is  not 
unlikely  to  hear  later  on  that  the  same  property  had  been  resold  at  a  price 
which  would  have  enabled  his  customer  to  pay  his  debts  in  full  with  the 
addition  of  sei-eral  years  of  interest. 

Few  bankers  in  Canada  but  have  known  cases  of  this  kind,  and  some 
have  seen  such  extraordinary  ciscs  as  the  realizing,  after  a  lai.se  of 
years,  for  one-tenth  part  of  a  certain  area  of  timbered  lands  a  greater 
price  than  the  whole  was  once  in  danger  of  being  sacrificed  for  in  a  time 
of  depression. 

There  is  one  feature  of  this  trade  in  .vhieh  it  differs  from  almost 
every  other  in  Canada,  vis.,  that  many  Americans  have  crossed  the  border 
at  various  times  and  established  mills  on  their  own  account.  Not  a  few  of 
such  have  become  perman  ..t  citizens  of  the  country,  transferring  to  it 
not  only  capital,  but  themselves  and  all  their  interests.  Some  of  the 
largest  of  the  lumber  tirms  now  in  Canada  are  of  this  description;  hay- 
ing acquired  limits,  built  mills,  and  amassed  wealth;  becoming,  it  scarce 
needs  be  said,  most  valuable  citizens  and  satisfactory  customers  to  the 
banks.  Natural  it  was  for  houses  of  this  description  to  keep  up  close 
connections  with  lumber  merchants  in  American  cities;  using  them  as 
agents  or  consignees.  Such  American  houses  would,  not  seldom,  accept  for 
the  Canadian  house  in  advance  of  shipment  In  that  case  the  banker 
would  be  advised  of  the  fact,  and  use  his  judgment  as  to  discounting  the 
bills.  If  he  did,  he  would  take  care  that  his  own  advances  should  be  paid 
off  before  they  matured,  or  that  the  proceeds  of  the  bills  should  be  used 
to  take  them  up. 

The  position  which  has  resulted  during  recent  years  in  the  lumber 
trade  from  the  strife  of  parties  in  politics  in  the  Unitrf  States  and  in  Can- 
ada, has  had  the  result  of  inducing  not  a  few  firms  in  the  lumber  regions 
ot  the  States  to  acquire  properties  in  Canada,  and  carry  on  their  operations 
here.  As  the  forests  of  the  Northern  States  become  more  and  more  de- 
pleted, this  step  is  likely  to  become  more  frequent.  All  that  has  been  ob- 
served with  regard  to  the  migration  in  the  earlier  years  in  the  trade  applies 
in  the  fullest  measure  to  this. 

The  only  other  variety  of  banking  transactions  connected  with  this 
trade  Is  in  the  case  of  American  houses  of  such  wealth  and  capital  that 
Ihcy  can  carry  on  the  large  operations  connected  with  a  Canadian  branch 
of  their  business,  without  requiring  bank  advances  at  all. 

In  this  case  all  that  a  Canadian  banker  will  be  required  to  do  is  to 
give  cash  for  authorised  short  date  drafts  upon  the  parent  firm.  But 
here  an  observation  requires  to  be  made.  In  cases  of  this  kind  it  has 
sometimes  occurred  that  a  change  of  policy,  or  a  change  of  times,  brought 


t-t 


120  BANKING   AND   COMMERCE. 

about  a  diiferMit  style  of  dealing  with  Canadian  banksj  an  ',  that  the  cash- 
ing of  sight  drafts  drifted  into  the  making  of  permanent  advances.  An 
occurrence  like  this  is  fully  opened  up  later  on. 

On  the  whole  the  accounts  of  persons  in  this  trade,  while  in  many 
respects  the  most  advantageous  that  a  banker  can  carry  on,  are,  at  the 
same  time,  such  ns  to  require  more  technical  knowledge  and  more  good 
judgment,  more  foresight,  and,  in  difficult  times,  more  courage  and  pa- 
tience, than  any  other  class  of  business  that  may  be  submitted  to  him. 


Adva:;ces  to  Flovr  Millers. 

This  branch  of  manufacture  diners  from  almost  every  other  in  the 
f..cl  that  the  raw  material  is  of  a  highly  speculative  character. 

The  Produce  Exchanges  of  Chicago,  New  York,  and  Montreal,  on  this 
side  of  the  Atlantic;  and  of  London,  Liverpool,  and  Glasgow  on  the  other 
(not  to  speak  of  Continental  cities),  are  all  the  scene  of  transactions  in 
grain  to  enormous  amount/  by  persons  ^.ho  never  either  see  or  handle 
the  commodity,  whose  operations  have  a  constant  bearing  upon  prices. 

This  has  already  been  fully  considered  under  the  heading  of  "Ad- 
vances to  Men  in  the  Grain  Trade."  What  we  are  now  concer.ied  with 
are  the  operations  of  the  men  who  turn  the  grain  into  flour,  oatmeal,  or 
other  manufactured  products. 

Of  these  there  were  formerly  a  large  number  scattered  over  tte  grain- 
producing  countries  of  both  Canada  and  the  United  States,  utilizing  the 
numerous  water  powers  to  be  found  therein.  Their  little  establishments 
in  some  cases  would  grow  with  the  growth  of  the  town  or  district,  until 
they  became  of  sufficient  importance,  not  only  to  supply  the  country 
arouiid  them,  but  some  distributing  centre,  whence  it  might  be  shipped 
across  the  Atlantic.  In  the  early  days  of  this  trade  the  miller  almost 
invariably  sent  his  product  for  sale  on  consignment;  drawing  against  it 
for  a  portion  of  its  value,  with  the  usual  result,  at  length,  of  embarrass- 
ment on  both  sides.  As  matters  progressed,  consignments  gradually  gave 
place  to  purchase  and  sale;  and  this  was  carried  out,  not  only  with  ship- 
ments to  centres  in  Canada,  hut  also  to  exports  across  the  ocean.  As  time 
progressed  and  population  increased,  the  mills  situated  along  the  line  of 
water  powers  were  enlarged  in  capacity,  and  Sicam  called  into  aid,  until^ 
in  some  centres,  large  establishments  were  tt  be  found,  whose  brand 
became  well  knowi:.  not  only  in  every  part  i>i:'  this  country,  but  also  in 
the  centres  of  population  in  Europe. 

In  dealing  with  ihe  men  carrying  on  this  business  the  banker  wiJl  re- 
quire the  same  fundamental  conditions  as  to  full  ownership  of  propeiiy, 
capacity,  experience,  and  prudence  which  have  been  referred  to  already. 
But  ns  »very  trade  has  its  special  requirements  and  dangers,  the  hauker, 
in  making  advances  to  a  flour  miller,  will  take  care  to  limit  them  to  such 
an  amount  that  his  funds  cannot  be  used  for  speculative  holdings. 

If  the  miller  carries  on  his  trade  steadily,  and  sells  ai  fait  u  he 


LOANS  TO  MANUFACTURERS  AND  IMPORTERS,     jai 

produces,  .idvonccs  will  never  need  to  be  more,  as  a  rule,  than  will  buy 
about  a  month's  supply  of  grain. 

There  is  no  br.ineh  of  manufacture  which  is  so  simple  in  character 
which  takes  so  little  time,  and  which  adds  so  little  to  the  cost  of  the  arti- 
cle as  milling.  A  dour  miller  is  not  like  a  lumberman  whose  article  takes 
twelve  months  to  produce,  nor  a  tanner  or  pork  packer  whose  procesi 
requires  we-.ks  or  monlhs  to  complete,  nor  a  cheese-maker  whose  product 
when  made,  requires  time  to  ripen.  The  product  of  a  flour  miller  can 
alwa.v.  be  sold.  The  world  needs  and  buys  it  every  day,  so  that  the 
process  of  manufacturing  could  go  on,  if  circumstances  required  it,  with- 
out any  accumulation  of  stock  whatever. 

Some  time,  however,  may  reasonably  be  allowed  for  contingencies 
both  for  obtaining  a  supply  of  grain,  and  of  manufacturing,  barrellinc, 
sacking,  and  transporting  to  market. 

If  the  advances  exceed  the  amount  required  to  purchase  a  months  sup- 
ply of  raw  material,  the  banker  will  need  to  be  satisfied  that  the  condition 
of  tlie  market,  the  difficulty  of  transport,  the  blocking  of  supplies,  or 
other  causes,  may  account  for  the  excess. 

In  a  miller's  account,  as  well  as  a  grain  merchant's,  any  indication  of 
speculating  on  margin  will  need  to  be  carefully  watched  and  checked  at 
the  very  outset. 

The  banker  will  also  be  careful  that  his  advances  are  not  expended  in 
additions  and  improvemen.s  to  the  mill;  or  in  the  purchase  of  an  addi- 
tional one,  should  some  tempting  offer  be  made.  A  man  who  desires  to 
stand  well  with  his  banker  will  never  be  tempted  to  such  a  misuse  of  funds 
advanced  to  him. 

This  trade,  unlike  that  of  timber  and  lumber,  does  not  move  in  cvcles 
of  a  temate  prosperity  and  depression.  «  has  its  changes,  ncverthde.., 
but  they  are  of  a  more  transient  character.  The  market  is  ebbing  and 
Mowing  continually;  and  there  is  a  necessity  for  the  miller,  like  the  grain 
dealer,  to  keep  a  daily  and  hourly  watch  upon  it. 

It  scarcely  need,  to  be  added  that  every  miller  will  act  wiselv  in  en- 
deavoring to  make  specialties,  which  v  ill  practically  sell  themselves  at 
better  prices  than  an  article  which  has  ..o  name,  however  it  may  be  pushed. 
To  do  this,  he  will,  of  course,  be  rigidly  careful  in  selecHng  his  grain, 
have  his  machinery  up-to-date,  and  work  his  process  at  every  step  to  the 
desired  end.  And  men  of  small  capital  in  this  business,  perhaps  more 
than  any  other,  need  to  beware  of  launching  into  operation,  larger  than 
their  capacity  or  capital  justify.  It  is  so  easy  to  do  it;  easier  in  this  trade 
than  any  other  that  can  be  named.  But  in  no  trade  is  there  more  reason 
tor  the  observance  of  the  old  adage, 

"V'essels  large  may  venture  more. 

But  little  boat',  should  keep  near  shore." 

The  principl  .  L.id  down  so  far  will  equally  apply  to  such  manufac- 
tnrer.  a.  tanners,  di.tiller.,  sugar  refiner.,  and  other,  of  a  like  character, 


iii 


i :  Ji 

m 


?l 


122  BANKING    AND    COMMERCE. 

where  larger  rapital  in  bnildingt  »nd  plant  ii  neeeiaary,  but  where  there 
is  not  a  large  proportionate  employment  of  labor. 

In  all  these  there  in  required  to  ensure  success  a  well  chosen  site,  mod- 
ern buildings  and  plant,  adequate  capital,  thorough  knowledge  of  mar- 
kets, and  if  possible  a  special  article  with  a  well-known  name  and  mark. 
And  the  banker  who  is  applied  to  for  advances  {or  fo.-  foreign  credits 
under  which  he  ..lay  be  requested  to  surrender  documents)  will  look  care- 
fully into  all  these  points,  so  as  to  judge  whether  advances  asked  are  of 
reasonable  amount,  and  also  whether,  from  the  "working  of  the  account," 
if  he  has  h£  •\  it  before,  the  business  appears  to_  have  been  carried  on  pros- 
perously or  not.  This  will  stand  him  in  special  stead  in  times  of  de- 
pression, when  it  seems  impossible  to  make  profits  in  any  line  of  business, 
and  when  that  most  difficult  alternative  is  presented,  between  making  fur- 
ther advances  and  keeping  a  concern  alive,  or  stopping  advances  alto- 
gether, with  a  certainty  of  bringing  it  to  an  end.  In  the  former  ease, 
there  is  risk  of  increasing  what  may  be  a  possible  loss,  tempered  with  an 
expectation  of  assisting  a  worthy  customer  over  a  difficult  time,  and 
avoiding  a  loss  altogether.  In  the  latter  case  there  will  be  an  a,  .)lute 
certainty  of  loss,  with  the  wearing  vexation  of  handling  an  insolvent 
estate,  realizing  stocks  of  merchandise  ([lerhaps  shipping  them  to  distant 
markets,  and  waiting  anxiously  for  returns),  selling,  or  attempting  to  sell, 
mills,  factories,  lands,  or  ships;  processes  which  every  banker  of  experi- 
ence has  learned  to  dread  as  not  only  vexing  to  the  last  degree,  but  as 
almost  invariably  disappointing. 

In  such  circumstances  nothing  enobles  a  banker  to  come  to  a  sound 
decision  better  than  a  knowledge,  not  only  of  the  customer  himself  (which 
is  the  first  element),  but  a  general  knowledge  of  the  business  he  is 
carrying  on. 

Cotton  ano  Woolen  Mills,  Etc. 

There  are,  however,  manufacturers  of  an  entirely  different  description 
to  the  foregoing.  In  fact,  these  are  seldom  spoken  of  as  manufacturers 
at  all. 

But  we  now  have  in  Canada  large  developments  of  manufacturing  in- 
terests, such  as  were  formerly  confined  to  England  and  the  older  countries 
of  Europe,  and  which  crossed  the  Atlantic,  and  became  established  in  New 
England  and  other  parts  of  the  United  States  at  an  earlier  period  than  in 
Canada.  These  last  have  been  largely,  but  not  wholly,  the  growth  of  a 
protective  policy. 

It  is  not  the  intention  of  this  work  to  discuss  the  debated  question  of 
Free  Trade  vs.  Protection.  The  fact  is  simply  noted  that  there  are  now 
esUblished  in  Canada,  as  developed  by  what  is  known  as  the  "National 
Policy,"  cotton  factories,  woolen  mills,  iron-works,  and  many  other  manu- 
facturing industries,  with  respect  to  all  of  which  one  particular  point  of 
difference  from  the  former  ones  is  noticeable,  vil.,  the  large  amount  of 
mechanical  labor  that  is  required  to  carry  them  on.    To  produce  the  same 


LOANS  TO  MAVUrACTURERS  AND  IMPORTERS.  123 


nnniml  output  of  goods  in  n  cotton  factory  thnt  would  be  turned  out  of  a 
Roiir  mill,  for  example,  ten  or  rvcii  twenty  tiuKs  tlie  nuinlirr  of  nrtisdUE 
M-ould  be  required.  And  the  outl.iy  for  wnjrts  would  be  liirge,  in  a  corre- 
epondini;  deprrc.  Some  of  this  cbiss  of  manufactures  are  more  indigenous 
to  the  soil  than  others;  for  exaniplr,  woolen  mitU  more  than  cotton  mills; 
inasmuch  us  part  of  the  raw  material  of  a  woolen  mill  is  a  product  of 
the  country.  Wooh'n  mills  were  therefore  known  in  Canada  long  before 
cotton  mills  were  heard  of.  Such  mills,  however,  were  of  n  very  simple 
type,  and  corresponded  largely  to  the  grist  mills  of  primitive  days.  These 
woolen  mills,  however,  have  now  developed,  in  many  eases,  into  large 
establiMlnnints  in  whith  gcMwis  are  produced  of  a  quality  rivaling  those 
of  the  old  world.  The  same  process  of  development  has  Iwen  seen  in 
nianufactnres  of  iron,  steel  and  agricultural  implements.  The  blacksmith 
■shops  have  grown  with  the  growth  of  the  locality.  A  primitive  village 
has  become  a  busy  town  or  city,  and  the  blacksmith  of  former  days  has 
expanded  into  n  manufacturer  of  all  kinds  of  goods  in  iron  and  steel, 
including  machines  for  producing  other  things.  Similarly  the  wagon 
maker  and  mechanic  of  a  former  generation  is  now  the  head  of  a  vast 
establishment  employing  thousands  of  hands,  and  manufacturing  agri- 
cultural machines,  not  only  for  the  Canadian  farmer,  but  for  export  to 
distant  colonies  of  the  F.mpire  and  other  countries.  The  little  cabinet 
maker's  shop  has  grown  into  a  vast  furniture  factory  able  to  produce 
goods  that  can  be  exported  to  advantage  to  the  mother  country. 

This  process  of  development  is  constantly  widening,  and  embracing 
■other  articles,  other  lines,  and  still  wider  areas  of  production. 

All  this  must  come  under  the  cognizance  of  the  banker;  and  the  enter- 
prising men  who  have  developed  these  industries  will  certainly  seek  to  be 
his  custnmrrs.  and  need  his  facilities,  not  only  to  give  cash  for  the  bills 
of  their  customers,  but  in  the  way  of  direct  loans. 

With  respect  to  these  lines  of  manufacture,  as  has  been  observed  re- 
specting others,  the  first  and  fundamental  requirement  of  a  sound  busi- 
ness concern  is,  that  if  the  customer  owns  the  property  it  shall  not  be 
<ncumlKTed;  and,  second,  that  whatever  advances  arc  obtained  shall  be 
represented  by  merchandise  which  has  been  paid  for,  or  collectible  debts. 
In  entering  on  the  business  of  dealing  with  manufacturers,  the  banker 
will  soon  ascertain  that  there  are  great  differences  between  the  skill  and 
capacity  of  one  manufacturer  and  another.  Kven  when  business  is  gen- 
erally prosperous,  one  man  may  succeed  and  another  fail.  Of  several  men 
who  are  carrying  on  cotton  mills,  one  '.^ay  have  a  sounder  judgment 
of  raw  cotton  than  another,  as  well  as  of  the  best  time  and  place  for 
purchasing  the  quantity  needed  from  time  to  time,  and  of  the  best  mode 
of  utilising  machinery.  A  whole  season's  productions  may  be  damaged 
by  errors  in  this  respect.  Men  in  the  charge  of  woolen  mills  may  also  pro- 
vince goods  of  n  pattern  that  will  not  sell,  or  they  may  acquire  a  name 
for  a  badly  made  goods  owing  to  poor  machinery. 

An  agricultural  implement  maker  may  experiment  upon  new  styles  of 


nil 


134 


BANKING    AND    COMMERCE. 


machines;  which  atylci  may  be  unsuccrMfnl,  and  hare,  prnctically,  to  be 
given  away.  It  ia  not)  therefore,  enough  that  a  banker's  advancei  ihould 
rett  on  merchandise  as  a  matter  of  theory;  for  if  they  arc  employed  to 
purchase  poor  raw  material,  or  to  produce  merchandise  that  nobody  wantSt 
his  reliance  on  merchandise  may  prove  a  dflusion.  Such  things  seldom 
happen  to  an  extent  which  makes  banking  ndrnnces  absolutely  unsafe. 
But  they  have  transpired  in  the  experience  of  bankers,  both  here  and 
abroad,  and  they  manifest  themselves  in  the  inability  of  the  borrower  to 
repay,  or  reduce  advances  as  agreed  upon.  And  they  often  result  in  the 
banker  having  to  tak.  security  upon  property  for  the  unpaid  portion 
of  the  debt. 

And  here  it  is  thct  one  of  the  dangers  of  incautious  banking  arises. 
If  a  borrower  has  been  able  to  obtain  advances  from  n  bank,  while  his 
property  is  mortgaged,  the  banker  will  have  no  recourse  but  to  take  i 
second  mortgage  as  security.  Now,  second  mortgages,  of  all  forms  of 
security,  are  the  most  undesirable  and  delusive;  for  in  a  majority  of 
cases  the  banker  will  iind  that  his  customer. has  already  obtained  on  the 
property  such  an  amount  as  makes  it  impossible  for  anything  additional 
to  be  got  out  of  it. 

But  the  greatest  danger  in  carrying  a  manufacturer's  account  is  that 
the  funds  loaned  for  the  purpose  of  producing  merchandise  may  be  di- 
verted in  the  direction  of  tixed  property.  A  manufacturing  establishment 
is  subject  to  constant  requirements  for  repairs,  improvements,  or  addi- 
tions, either  to  the  building,  the  machinery  or  the  power.  Circumstances 
often  transpire  that  seem  to  call  for  unusual  outlay;  some  accident  to 
machinery;  some  bursting  of  a  dam;  some  fire  not  w>  '!y  covered  by 
insurance;  all  of  which  call  for  expenditure  that  cannk>w  be  met  out  of 
profits.  Or  the  manufacturer  may  be  of  a  quick,  inventive  capacity;  fond 
of  trying  experiments  calling  for  new  machines  or  additions  to  build- 
ings. 

In  all  these  cases  such  expenditures  should  be  met  out  of  a  reserve 
fund  invested  in  a  realizable  form,  or  out  of  additional  capital,  or  an 
issue  of  bonds.  But  in  some  cases  they  become  a  drain  upon  banking 
advances,  and  cause  such  advances  to  assume  the  shape  of  a  "lock  up." 
In  this  manner  many  of  the  losses  in  the  manufacturing  districts  both  of 
England  and  Canada  occurred.  Indeed,  to  such  an  extent  has  this  been 
the  case  it  times,  that  a  manufacturing  concern  has  drifted  from  bad  to 
worse,  until  bank  advances  were  represented  by  nothing  but  buildings 
and  machinery,  whicli  when  realised  left  a  debt  behind,  on  which  the 
banker  might  receive  a  dividend  of  iive  cents  on  the  dollar.  These  are 
not  fancies,  but  facts.** 


44  In  one  of  the  larsrejt  manufacturlnr  districts  of  England  a  bank  ha^  long 
carried  on  business  which  had  almrst  the  whole  of  Its  resources  employed  in  man- 
ufacturins  accounts.  Two  principles  have  been  rigidly  ob8*rv*ed  In  the  manasre- 
ment  of  this  bank  from  the  beginning,  vIe.,  that  advances  shall  never  exceed 
moio  than  one-tenth  cf  the  annual  uulijut  of  the  cuncerni  and  that  ail  such  ad- 
vances shall  be  paid  off  once  a  year.  (This,  of  course,  does  not  refer  to  the  dis- 
count of  trade  bills.)     This  bank  hu  had  a  career  of  singular  prosperity  amongst 


LOANS  TO  MANUFACTURERS  AND  IMPORTERS.  125 


LOANI    TO    WllOLKSAlE    MLRrHANTM, 

There  is  tills  fundnimnlnl  differt-nce  between  the  wlioltsnle  merchant 
and  the  maniifacturrr:  that  the  merchant,  if  his  credit  is  good  enough, 
cnn  put  the  whole  ol  his  stock  upon  hi  shelves  without  the  expenditure  of 
A  single  dnllnr  exeent  for  freight  and  duties.  Om>d  credit  will  enable 
him  to  obtnin  nil  he  wants  from  manufacturers  on  this  side  of  the  Atlantic, 
or  from  wholesale  mouses  in  England.  But  a  niannfaeturer  can  do  noth- 
ing of  the  kind.  I'roni  the  time  that  he  begins  operations  he  has  to  pro- 
vide for  a  cash  expenditure  which  never  ceases  until  goods  are  ready  for 
sale.  In  nearly  every  branch  of  manufacture  he  must  pay  cash  for  his 
raw  material  and  his  fuel.  And  the  moment  he  begins  the  manufactur- 
ing process,  his  pay-roll  of  wages  confronts  him  week  by  week,  and  must 
be  m;'t.  There  can  be  no  possibility  of  asking  credit  here;  not  for  a 
single  week  could  wages  be  left  impaid.  In  the  case  of  the  sixeial  lines 
of  manufacture  lately  under  review,  where  wages  are  a  most  important 
item  of  cost,  the  necessity  of  meeting  the  large  sums  required  is  the  most 
harassing  of  all  financial  pressures.  It  presses  indeed  more  heavily  than 
the  necessity  of  meeting  accept.inces  and  promissory  notes,  for  the  payees 
of  these  ciin  be  approached  for  renewal  at  a  pinch,  while  a  request  to  a 
body  of  workmen  to  defer  payment  of  wages  is  utterly  impossible.  And 
as  pa.vnient  is  imperative,  the  manufacturer  will  naturally,  in  such  cir- 
cumstances, have  recourse  to  his  banker. 

Hence,  it  is  more  difficult  to  finance  for  a  manufacturing  establishment 
than  for  the  business  of  a  wholesale  merchant.  The  latter,  having  the 
power  to  buy  goods  at  all  times  on  credit,  has  no  reasonable  ground  for 
asking  regular  ad\  ices  from  his  banker.  His  dealings  should  be  con- 
fined, as  a  rule,  to  the  discount  of  bills  given  by  his  customers. 

The  only  payments  ii  wholesale  merchant  has  to  make,  which  are  abso- 
lutely imperative,  are  the  customs  duties  and  freight  on  imported  goods. 
It  is  just  as  impossible  to  ask  credit  here  as  it  would  be  for  the  payment 
of  wages.  Hut  no  wholesale  merchant  could  reasonably  think  of  com- 
mencing business  without  capital,  and  the  very  lowest  minimum  necessary 
would  be  an  amount  sufficient  to  pay  the  duties  on  the  stock  requisite  to 
commence  business,  and  thereafter  on  his  average  stock. 

Once  he  has  his  goods  in  warehouse,  he  can  begin  to  sell,  and  with 
such  facilities  as  bankers  arc  now  ready  to  olTer  for  the  cashing  of  cus- 
tomers' bills,  a  merchant  may,  from  a  financial  point  of  view,  be  said  to  be 

an  the  Riictuar'ons  of  the  trade  of  the  district,  and  Its  losses  hnv«  been  a  mer« 
fraction  I'f  Riich  as  have  been  suffered  hy  even  wr-Il  manngi^d  Canadian  banks 

It  would  be  dlfflcult  to  apply  both  of  these  rules  to  such  lines  t-f  manufacture 
as  saw  milling  and  tanning,  owing  to  ihe  great  length  of  the  manufacturing 
process.  But  the  Inst  of  them  is  an  absolutely  necessary  requirement  In  every 
case.  And  the  flist.  which  Implies  that  there  should  be  a  certain  proportion  be- 
tween the  amount  of  advances  and  (he  annual  output.  Is  Important  ae  in.lfcatlng 
what  Is  desirable  In  all  manufacturing  advances,  the  proportion  varying,  of  tourse 
■with  the  r  edition  of  the  business. 


KM:' 


ite 


BANKIVO    AND    COMMERCE. 


Me  to  Bell  for  f.-mli.  Thus,  liy  the  tiinr  thr  pnrnirntfl  for  hli  itock  hc- 
rtime  diir.  thi-  prwrcdii  of  hia  lalei  ou^lit  to  W  itiffiririit  to  nirrt  them. 
Thin  clfimiit.iry  tinancinl  theory  of  a  wholrnnle  builncBi  bccnniei 
modiHrd  by  firciini»tnnrr«  m  time  projirfBird,  nnd  no  pnidrnt  mnn  would 
be  •atUtird  with  iK-infr  sn  wholly  drprndcnt  on  his  credit  with  other  houiet 
at  to  have  nothing  left  over  after  pnyment  of  dutiei. 

He  will,  of  oonrse.  nim  at  having  fnr  :nore  capital  than  that.  Bi<t 
even  on  such  a  iniHlicni.i  of  capital  aa  ii  indicated,  it  ii  clear  that  no  ni- 
ccstity  should  ariie  for  loam  from  a  banker.  From  nil  which  the  rule  may 
be  deduced  that  loans  to  a  wholesale  merchant  (as  distinguished  from  the 
discount  of  trade  bills)  should  be  ennsidcred  as  irregular  in  the  nature 
of  things,  and  only  to  be  granted  in  exceptional  eirciimstances. 

When  therefore  a  banker  is  applied  to  by  a  wholesale  merchant  for 
a  loan  in  addition  to  a  discount  of  customer's  bills,  he  is  put  upon  inquiry 
as  to  why  such  a  loan  is  required.  The  reason  commonly  given  is  that 
goods  arc  arriving  in  quantity  in  the  Custom  House  and  that  the  duties 
must  be  paid.  But  th'-  in  itself,  is  not  n  good  reason.  For,  as  has  been 
obter\'ed,  the  eajii^^l  c  t'  *.  :ch  a  house  should  be  sufficient  to  provide  for 
this  requirement.  The  payment  of  cusloniH  dues  can  never  take  a  mer- 
chant unawares.  The  necessity  for  it  must  have  been  seen  long  before- 
hand, and  ample  opportunity  given  for  making  provision.  An  applica- 
tion for  a  loan  may  therefore  indicate  that  purchases  have  been  too  heavy; 
or  that  sales  arc  not  being  vigorously  pushed,  or  that  an  unsuitable  stock 
has  been  laid  in,  or  that  the  customers  of  the  house  cannot  be  depended 
on  for  payments.  Any  of  these  will  cause  the  finances  of  a  wholesale 
house  to  drag  he.-ivily,  and  they  are  all  of  such  a  character  as  to  make  a 
banker  pause.  The  head  of  a  house  may  naturally  be  unwilling  to 
acknowledge  that  any  of  these  suppositions  are  correct,  and  some  are  very 
unwilling  to  talk  to  a  banker  on  the  subject.  Yet  the  application  for  a 
loan  gives  him  the  right  to  make  inquiry;  for  experience  shows  that  such 
things,  if  allowed  to  go  on  uncorrected,  may  b  the  beginning  of  a  course 
which  will  end  in  insolvency. 

There  is  this  further  reason  for  a  banker's  caution  in  this  matter,  that 
a  dealer  in  imported  or  manufactured  goods  cannot  give  a  banker  secur- 
ity upon  thena.  A  miller,  a  tanner,  a  pork  packer,  can  pledge  his 
product  as  security  for  advances  under  the  warehousing  clauses  of  the 
Banking  Act.  But  a  wholesale  merchant  cannot  do  this  under  the  Act. 
And  there  is  reason  for  this  distinction  in  the  nature  of  things;  for  a 
wholesale  merchant's  stock  has  almost  invariably  been  bought  on  credit. 
The  goods  on  his  shelves  are  probably  not  yet  paid  for.  It  would  there- 
fore be  contrary  to  every  principle  of  equity  to  allow  a  merchant  to 
pledge  hJs  goods  for  advances  while  the  claims  of  the  creditors  were 
unsatisfied.  This  being  the  case,  it  has  become  a  practice  for  such  loans 
to  be  applied  for  without  security,  and  not  infrequently  for  them  to  be 
granted  in  that  shape.     This  certainly  is  a  deviation  from  sound  banking, 


IJ.    »  "III 

5 


LOAN'S  TO  MANUFACTURERS  AND  IMPORTERS.  1-27 

practicp.  But  the  whole  lyatcni  nf  limns  tn  wliok'ulc  merchant*  ti  cxcep- 
tionnl,  and  rrquim  exrrptionni  trratniint  at  the  hands  of  a  banker. 
The  rharactrr  of  that  treatment  niny  be  indicated  ni  followi: 
Flrit,  no  ref^lar  line  of  credit  nhoiild  be  arranged  for  in  reipcct  of 
loans  i  that  ii.  no  nrootint  which  a  customer  can  always  have  at  his  com- 
mand. Second,  advances  should  be  temporary;  each  being  applied  for  on 
its  own  merits,  with  the  rxplnnation  of  circumstances.  Third,  they  should 
only  be  allowed  at  certain  sonsons,  and  never  last  more  than  two  oi>  three 
months  at  the  most.  Fourth,  renewals  should  not  be  granted.  Indica- 
tions of  continuance  should  lie  carefully  watched  and  promptly  dealt 
with.  If  ndvances  become  chronic,  security  should  be  insisted  upon. 
Fifth,  it  is  always  desirable,  too,  that  when  such  advances  are  granted  to 
a  firm,  the  endorsement  or  gunrantt-e  of  each  individual  in  its  should  be 
obtained;  for  individual  partners  may  have  separate  estates  which  the 
endorsement  would  bind.  If  the  business  is  carried  on  by  a  joint-stock 
company,  the  guarantee  of  some  of  the  principal  stockholders  would  be 
desirable. 

By  the  observance  of  such  rules  as  these,  and  with  constant  exercise 
of  vigilance,  loans  of  this  character  may  be  granted  without  unreasonable 
risk." 


4!i  In  the  par1>  dayi  of  Jolnt-titnrk  banklnR  In  Enclftnd  and  Scotland,  when  th« 
businpM  was  not  ao  well  understood  as  at  present,  numbers  of  acroiints  In  ths 
ntanufacturlnB  districts  of  England  had  drifted  Into  the  condition  of  bclns  larcelr 
represented  by  fixed  property.  Half  the  cotton  mills  of  Lancashire,  the  woolen 
mill,  of  Yorkshire,  and  the  Iron  foundrlea  of  the  "olack  district"  were  mnrtsaKed 
to  the  banks  of  that  t'erlod,  some  of  which  were  ruined  by  the  heavy  losses  that 
ensued.  Thene  severe  lessons  have  had  their  fruit  tn  the  Improved  style  In  which 
bank  advances  are  made  In  these  timea  to  the  mutual  advantage  of  both  the  banks 
and  their  customers.  The  same  condition  of  thlnca  prevailed  In  certain  quarters 
at  one  time  In  Canada,  and  with  the  same  result  of  either  embarrassment  or  abso< 
lute  ruin. 

In  a  certain  district  of  Canada  where  flour  milling  wrb  a  leading  Industry,  It 
was  well  known  at  one  time  that  nearly  every  mill  It  contained  had  fallen  Into 
the  hands  of  the  leading  bank  of  the  dUtrlct  by  foreclosure  of  mortsmce.  This 
was  the  result  of  the  style  of  business  adopted  by  one  who  was  known  as  a  most 
enterprising  and  pushing  manager,  whose  lavish  dealing  with  the  fundit  entrusted 
to  him  by  his  head  office  had  not  only  ruined  the  customers  who  dealt  with  him 
but  brought  about  heavy  losses  to  the  bank. 

The  disposal  of  these  properties  and  the  operatlcns  connected  therewith, 
formed  a  principal  part  of  the  occupation  of  the  officer  who  succeeded  the  en- 
terprising manager.  If  the  bank  referred  to  had  been  an  Independent  one.  llkt 
the  banks  In  small  towns  tn  the  United  Sutes,  It  would  have  been  ruined  beyond 
redemption;  but.  fortunately  It  was  only  a  branch  of  a  larger  Institution  which 
could  afford  to  lose  large  sums  i"lth  no  more  consequences  than  temporary  em- 
barrsssment. 


CHAPTER  Xni. 


LOAN!  TO  BAILWATS  AMD  RAILWAY  OONTRAOTOKB. 

RaILWATI     UMDM     CoKtTBVCTIOir — PlCUUAll     tJAKOKKI RaILWAYI     IM 

OriltATIOK CoNTmACTOM DeLAVI    iN    PAVMCNT ENOlNllft'f 

CBBTiriCATKt— LocK-Un — CoKTiucTi   roR  Railway  Cohpaniii — 

COMTRACTt  FOB  PuBLIC  WOBKI  OF  GoTIRMMEMT. 

THE  development  of  r«ilwayi  in  modern  time*  ii  one  of  the  mott 
itriking  facton  in  oar  indiutrial  progreti.  Though  thej  do  not 
produce  or  create  anything,  thty  bring  producer  and  coniumer 
more  nearly  together,  and  lewen  the  coit  of  raw  material  to  the  pro- 
duoer  and  of  finiahed  product!  to  the  coniumer,  m  much  as  to  have  given 
an  enormoui  itimolni  both  to  manufacturing  and  trade.  This  hai  been 
the  caie  even  in  the  older  countries  of  Europe,  whoie  every  acre  was 
cultivated  long  ago,  and  whose  means  of  transportation  were  in  a  well 
developed  condition  long  before  railways  were  heard  of.  but  whatever 
stimulus  might  be  given  to  production  aiid  tradr  by  railroads  in  older 
countries,  It  has  been  immeasurably  exceeded  by  the  effect  which  their 
construction  has  produced  upon  the  undeveloped  or  partially  developed 
regions  of  North  America.  Whether  in  the  United  States  or  in  Canada, 
the  effect  of  the  extension  of  railways  into  undeveloped  tracts  of  country 
has  been  such  that  it  may  almost  be  said  that  the  railway  has  created  the 
country.  For,  so  far  as  the  interior  of  the  continent  is  concerned,  when 
we  consider  the  enormous  distances  to  which  the  product  of  the  soil  had 
to  be  carried  to  reach  a  market,  it  will  be  seen  there  was  an  insuperable 
bar  to  profitable  cultivation,  and  that  great  regions  now  populated  and 
prosperous  must  have  remained  in  their  oriirinal  state  of  wildneu,  but  for 
better  means  of  transit.  But  the  railway  which  penetrates  these  regions 
enables  their  products  to  be  brought  profitably  to  market,  and  so  opens 
up  a  path  to  settlement  and  the  industrial  development  that  follows.  Thus 
it  has  been  in  all  the  WcKtern  States  of  the  American  Republic,  and  thus 
it  has  been  in  Canada  in  a  most  remarkable  degree. 

But  at  an  early  stage  in  these  developments  the  Intervention  of  the 
banker  has  been  needed.  The  financing  of  nearly  every  railroad  during 
the  period  of  itv  construction  has  been  attended  with  not  a  few  financial 
difficulties;  the  only  exception  being  the  railroads  avowedly  undertaken 
as  Government  works.  Of  this  we  have  had  one  conspicuous  example  in 
Canada  in  the  case  of  the  Intercolonial. 

Railway  corporations  have  two  modes  of  raising  money;  viz.,  by  the 
•obscription  of  stock,  and  by  the  issue  of  bonds;  tlie  latter  being  partly 
of  the  nature  of  mortgages,  and  partly  of  long-dated  promissory  notes. 
SulMcriptlons  on  account  of  stock  are  invariably,  in  these  times,  paid  in  . 


RAILWAY    LOANS. 


189 


to  •  binlicri  and  iMa  li  the  point  at  which  the  bank  and  the  railway  Ant 
come  Into  contact.  The  banker  openi  an  account  with  the  company; 
recelvet  money  on  lla  account ;  payi  out  that  money  aa  cunitrucllon  pro- 
<!eeH«,  often  at  widely  dlltant  points  through  the  niidiuni  of  Hi  branchcl. 
The  hank  aim,  throujih  tlii-  medium  of  hills  of  i  xolmn^jc-,  lirlngi  out 
moneyi  paid  li  liy  >ul»crili<'ra  nhrimd.  ami  plana  tin  ui  to  the  credit  of 
the  comiuiny  In  Conodn.  .\ll  the  for.nolng  arc  •impli-  and  natural  hank- 
ing traniactions,  and  although  the  aniounti  involved  are  aometiuiea  enor- 
mout,  amounting  to  teni  of  milllona  In  the  courie  of  a  lingle  half-year, 
they  are  not  luch  a>  to  give  occniion  for  thought  or  anjiety  on  the  part 
of  the  banker.  So  long  ai  the  lunii  drawn  out  are  no  ii'iore  than  the 
aumt  paid  in,  the  transaetioni  are  port  of  the  mere  routine  of  hanking. 
Thii  ii  the  elcmentory  theory  of  banking  in  connection  with  railroadi 
during  conatruction. 

But,  ai  a  matter  of  fact,  it  often  hn|ipenB  that  the  financiol  opira- 
tiona  connected  with  the  building  of  a  railway  do  not  run  as  amnothly 
as  this.  The  Incoming  of  money  does  not  alwara  keep  pace  with  the  ex- 
citing demands  of  its  outgoing.  These  demands  are  imperative,  consist- 
ing as  they  largely  do  of  wages  of  laborers  and  artisans.  It  has  already 
been  shown  how  necessary  it  Is  to  meet  demands  of  this  nature  at  the 
time  they  are  due.  It  hap|>ens,  therefore,  at  times,  that  emergencies 
arise  which  lead  to  an  application  to  the  banker  for  advances.  The 
banker  Is  naturally  the  jierson  opplied  to,  as  the  company  Is  having  large 
monetary  transactions  with  him;  and  the  application  can  be  represented 
as  simply  the  honoring,  for  a  short  period,  the  checks  of  the  company, 
until  subscriptions  are  paid  In,  or  bonds  are  sold.  It  has  thus  come 
about  that  many  a  banker  has  been  induced  to  consent  to  advance),  which, 
though  represented,  with  perfect  slncerit.v,  as  "temporary,"  were  found 
to  have  an  unpleasant  element  of  permanency  about  them  In  practice. 
The  new  subscriptions  or  the  proceeds  of  new  bonds  could  not  In  some 
cases  be  applied  to  the  advance,  inasmuch  as  the  money  was  required  to 
meet  other  and  more  Imperative  demands.  The  temporary  overdraft, 
therefore,  went  on,  with  varying  amount,  but  undischarged,  even  for 
years,  until  some  turn  of  events  i-ftcr  completion  enabled  funds  to  be 
set  aside  to  meet  the  banker's  claim. 

These,  however,  are  not  the  only  contingencies  that  meet  the  banker, 
when,  as  is  generally  the  case  on  this  side  the  Atlantic,  the  money  Is 
raised  In  one  country  and  expended  in  another.  The  officials  of  a  road 
uniier  construction  are  subjected  to  constant  pressure  to  find  funds  for 
vas  pay-rolls  regularly  recurring,  sometimes  running  up  to  miUlonj; 
and  on  the  banker  demurring  to  increasing  an  overdraft,  would  suggest 
that  he  might  cash  bills  of  exchange  drawn  by  them  on  headquarters. 
They  might  not,  it  is  true,  have  explicit  anthority  for  so  doing.  But 
they  would  trust  to  the  exigencies  of  the  case  being  recognized  and  the 
bills  honored.    Such  things  have  been  known,  however,  as  of  these  billi 


BAVKIXG    AND    COMMERCE. 


being  refused  acceptance  or  recognition,  and  of  the  banker  being  com- 
pelled, to  his  intense  disgust,  to  write  them  off,  as  losses. 

A  case  has  also  happened  where  a  railway,  pushing  works  of  con- 
struction ahead,  for  a  road  of  which  it  has  obtained  control,  but  which 
is  still  carried  on  under  its  old  name,  has  made  arrangements  with  ft 
bank  for  supplies  of  money  from  month  to  month  to  be  repaid  periodi- 
cally by  drafts  on  the  headquarters  of  the  company.  For  a  time  the 
arrangement  works  smoothly,  and  advances  are  paid  off  periodically. 
But,  as  time  goea  on,  money  is  not  paid  in  the  one  country  as  fast  at  it 
is  needed  in  the  other.  The  bankers,  therefore,  are  asked  for  the  peri- 
odical payment  to  be  deferred.  Meanwhile,  outlays  proceed,  advancet- 
go  on  increasing,  until  at  last  the  bank  is  itself  embarrassed  by  the  huge 
amount  to  which  the  account  has  grown.  Further  advances  are  therefore 
stopped,  and  payment  demanded  of  those  existing.  Then,  to  the  disgust 
and  alarm  of  the  bank,  the  point  is  raised  as  to  which  corporation  ha» 
had  the  advances.  Is  it  the  corporation  that  has  obtained  control  of 
and  absorbed  the  other,  or  the  corporation  which  has  been  absorbed, 
but  which  is  practically  a  mere  name  ?  The  lirat  repudiates  responsi- 
bility. Litigation  ensues,  and  is  continued  for  years.  Meantime  the 
bank  is  embarrassed  by  the  enormous  amount  of  its  funds  locked  up, 
and  suffers  in  credit  through  the  facts  becoming  known.  The  case  is 
finally  settled  by  an  arrangement  for  a  special  issue  of  bonds,  the  whole 
of  which  are  handed  to  the  bank.  But  of  these  bonds  neither  interest 
nor  principal  is  ever  paid,  and  the  bonds  themselves  are  finally  can- 
celled by  legislative  arrangements,  which  give  the  bank  about  one-tenth 
of  its  advances,  the  remainder  being  a  total  loss.  Largely  as  a  conse- 
quence of  this,  the  bank  ultimately  suspends  payment  and  finally  passet' 
out  of  existence. 

Advances  to  a  railway  during  construction  are  therefore  critical  af- 
fairsj  and  require  much  judgment  and  caution,  and  also  much  firmnesa, 
on  the  banker's  part,  in  dealing  with  the  account.  Such  advances,  if" 
once  allowed,  are  almost  certain  to  increase.  And  aa  the  disbursements,, 
during  construction  of  even  a  small  railway,  are  very  heavy,  the  pres- 
sure for  advances  may  soon  raise  them  to  large  amounts.  The  only 
safe  rule  for  a  banker  with  an  account  of  this  kind  is  to  be  firm  at  the 
outset,  and  not  to  allow  the  thin  end  of  the  wedge  to  be  inserted  without 
outside  security. 

It  is  a  delusion  to  suppose  that  a  railway  corporation  must  in  the 
nature  of  things  be  good  to  repay  advances.  A  banker,  until  he  has 
learned  the  contrary  by  experience,  finds  it  difficult  to  believe  that  a 
corporation,  with  a  paid-up  capital  of  millions,  can  fail  to  pay  Its  debts. 
But  reflection  would  teach  him  that  when  the  whole  of  the  capital  afore- 
said has  been  expended  in  works,  from  which  it  can  never  be  extracted 
again,  it  is  impossible  that  capital  can  furnish  the  means  of  repaying 
what   he   haa    lent.      Still  more  is  this  the  case  when  such  a  company 


RAILWAY    LOANS.  ,3, 

e'xte'ntto  .h'TT''"'  T""'"';  '"  ""  "'"P"  "'  ^■'^'  ">  ">'  "'"■0,1 
«m.t.t.ted  by  law  a  hr.t  mortgage  on  .11  the  property  of  the  cZ^ 
The  banker  hercfore  find.  him.elf  in  a  difficult  po.itL  if  he^ZS^ 
recovery  by  law;  he  indeed  find,  thi,  in.po..ibIe  ^ 

It  may  be  taken  therefore  a.  an  .,iom  in  banking,  that  advance,  to 

pz  n:t;^art!f."Zn^  i^^^r  -f 

they  .honld  be  received  with  cantion,    for    tte  p"per  ^o^t  "f  "nir''^ 

.imp  y  a  c„n.en.„.  of  the  opinion,  of  the  finaneUl  world  """  " 

.Many  inatance.  have  been  known,  of  a  finished  railw.'v  !,».  1 

nected  with  iu  bond,  or  .tock..  But  .hcnT^^  U  .74 1"  X 
crMn.n.t,ve  judgment  in  regard  to  advance.  like  thi.:  for  he"  ha« 
been  .nstance.  of  railroad,  getting  into  ,uch  low  water  tha.  !„  ^  7 
cnc  conld  be  placed  upon  them  for  any  J  of  ^ent     "^^t^Zt' 

they  would  be  wanting  in  judgment  to  a  .ingnlar  degree  TtheV  "l  ^ 
n<.^treat  .uch  a  railway  a.  they  would  an  imr«uni.:r:erl'tu7b^;! 

A  railway  corporation,  in  fact,  come,  to  have  what  may  be  called  a 
commerc  .1  .tanding,  exactly  a.  a  „ereh«,t  doe..  It  i.  not  ^"0"  foj 
mcrcant.1.  agencie.  to  enter  raUway.  in  their  book.,  and  ^e  U,! 
r.dc.  of  credit;  but  if  they  did,  they  would  find  it'nece-a^ry  to  ^^ 
«  many  .ymbol.  a.  they  do  in  ca.e  of  merchant..     Some   wo,Jd   have 

fc-8''«;  P'i'  of  credit  that  any  mark,  could  indicate,  whU.  other, 
would  be  found  at  the  other  end  of  the  «.le.  But  a.  there  are  no  book. 
of  reference  indicating  the  .tanding  of  railwav..  and  any  reference  to 


I 


,,(  BANKING    AND    COMMERCE. 

their  .uppo^d  cpitol  i>  utterly  delusive,  a  banker  mart  hta.elf  lake 
means  lo  find  out  what  is  neeessarv,  only  taking  eare  that  he  doei  not 
find  it  out  by  costly  experience. 

Railway  Contractors. 
Closely  connected  with  the  foregoing  are  advances  which  banks  are 
often    called    to    make,    during    construction,    to    railway    contractors. 
Through  the  hands  of  this  class  of  the  community  very  large  sums  pass 
during  the  course  of    construction,    and    the    eipendltures  of  a  single 
month,  at  times,  run  up  into  millions  of  dollars.     The  usual  course  is 
for  pavments  for  work  to  be  made  on  the  certificate  of  an  engineer  or 
inspector,  at  periodical  times,  named  in  the  contract,  and  usually  once 
a  month.    This  process  seems  very  simple  and  not  likely  to  lead  to  finan- 
cial difliculties.     But  experience  teaches  otherwise,  as  will  now  be  shown. 
Any  person  or  firm  engaging,  or  contracting,  as  the  phrase  is,  to  do  a 
certain  piece  of  work,  will  require,  before  he  begin,  it,  a  conaiderable 
stock  of  material  and  plant.      He  murt  have  horses,    barrows,  shoveU, 
wagons,  and  a  varietv  of  other  tools  and  plant  of  more  or  less  value, 
according  to  the  extent  of  his  contract.     In  some  case,  the  whole  of  the 
contractor's  capital  will  be  invested  in  his  plant.     If  he  open,  a  hank 
account,  and  it  i.  almost  a  necessity  that  he  should,  he  will  inform  the 
banker  of  the  amount  of  money  he  has  so  invested,  and  will,  naturally, 
open  to  him  the  amount  of  the  contract,  the  mode  and  time  of  payment 
for  his  work,  and  so  on.     In  fact,  he  will  explain  his  position,  so  that, 
in  case  he  require,  advances,  the  banker  may  understand  what  to  do. 
In  a  majority  of  cases,  a  contractor  wUI  want  advance,  before  he  has 
got  on  far  with  his  work,    for  the  pay-roll,  of  his  men  will  come  due, 
and  murt  be  met,  before  his  receipts  from  the  company  come  in.     For 
there  is  always  an  interval,  during  which  his  work  is  being  measured, 
his  account  passed,  and  payment  received  in  the  treasurer's  ofiic.    This 
interval  may  be  days  or  it  may  be  weeks,  but  his  litUe  army  of  workmen 
cannot  wait  for  weeks,   or  even  for  days;   they  moat  be  paid,  or  they 
wiU  not  go  on  with  the  work.    Now,  some  contractors  have  avaUable  cap- 
ital enough  to  enable  them  to  pay  their  wages  in  the  interval;  that  is, 
they  have,  in  addition  to  the  capital  they  have  expended  on  the  plant, 
or  "material,  sufficient,  at  leart,  to  meet  a  month's  pay-roll  of  their  men. 
Men  of  such  capital  as  this  seldom  require  advances  at  an  early  rtage 
of  1  contract,  though  they  may  do  «o  later  on.<»     But  the  majority  of 
contractors  have  not  so  much   capital   as    this,    and  are  in  the  habit  of 
applying  to  a  banker  for  advances,  the  ground  for  such  application  be- 

iTnt  aulhoi  will  reni«ir.ber.  an  nccount  opened  with  the  bank  In  whkh  his 
early  da>»  were  pMsed.  by  the  contractors  for  the  worka  of  th«  Manchester  * 
Bhemeld  Hallway.  They  depo.ll.y]  a  .in.le  .om  ot  £SO.0M.  IJine  aa  this  was. 
It  waa  all  abeorbed  aa  the  work  went  <m.  and  tiny  had  to  apply  to  the  bank  (or 
advwncM. 


KAII.WAY    LOANS. 


ing  that  lo  much  work  has  been  doi|e  or  will  be  done  at  the  end  of  the 
month,  when  the  aceount  will  be  pr^ented,  certitied  and  paid.     And  as 
payment  is  supposed  to  be  sure,    the    borrower  will  represent  that  ad- 
vances must  be  safe.     In  many  coses,  the  contractors  will  give  to  the 
bank  a  written  order  on  the  treasurer  of  the  company,  directing  him  to 
pay  the  account  to  the  bank  when  certified.     This  might  seem  to  make 
the  advance  perfectly  safe,    especially    if    the  treasurer  undertakes  to 
comply  with  the  order.    But  a  treasurer  will  almost  certainly  avoid  bind- 
ing himself  to  pay  a  specified  sum  of  money  at  a  specified  time.     He 
will  generally  simply  acknowledge  the  receipt  of  the  letter,  or  if  he 
goes  further,  he  will  say  that  it  has  been  placed  on  file,  probably  calling 
the  banker's  attention  to  the  fact  that  his  duty  is  only  to  pay  whatever 
sum  may  be  certified  by  the  engineer  of  the  company  to  be  due.     And 
here  we  touch  the  vital  point  of  the  whole  matter,  for,  as  many  bankers 
have  found  to  their  cost,    nothing    is    more  common,    in  railway  work, 
tiian  for  disputes  to  arise  b»tween  the  contractor  a"d  the  engineer,  and 
for  such  disputes  to  remain  unsettled  for  a  length  of  time.     In  the  in- 
terval,   possibly,    payments  may  he  made_  on  aceount,    but    not    nearly 
enough  to  cover  the  banker's  advance.     Meantime,  another  month's  work 
has  been  going  on,  and  pressure  is  put  upon  the  banker  for  further  ad- 
vances, which  he  may  yield  to,  under  expectation  of  a  speedy  adjust- 
ment of  differences.     This  the  contractor  will  give  strong  assurances  of. 
The  banker  therefore  is  in  a  diflicnit  position.     If  he  refuses  to  advance 
further,  his  customer  cannot  meet  his  payments.     The  work  must  there- 
fore stop,  his  contract  will  be  annulled,  and  any  drawback  in  the  hands 
of  the  company  forfeited.     This  will  almost  certainly  result  in  a  loss 
to  the  bank;  for  such  a  contractor's  capital  will  only  be  represented  by 
plant  and  material,    which    will    depreciate  to  a  mere  nothing  if  sold, 
though  it  may  have  cost  a  very  large  sum  of  money.    On  the  other  hand, 
if  he  goes  on,  he  may  continue  to  have  a  profitable  account  and  come 
out  safely  in  the  end.     Perhaps  he  may  stipulate  for  an  eitra  charge  in 
consideration  of  the  extra  risk;    but    whether  he  comes  out  well  or  not 
will  largely  depend  upon  whether  the  contract  is  a  good  one,  and  what 
the  amount  aifected  by  the  dispute  it.      It  may  be  $3,000;    it  may  be 
$30,000;  it  may  be  even  $,100,000;  but  a  contract  is  rarely  finished  with- 
out a  dispute  of  some  kind,  as  to  the  quality  or  quantity  of  the  work; 
whether  a  certain  amount  of  material  removed  was  not  rock  instead  of 
earth,  whether  the  foundations  of  a  bridge  are  properly'  laid,  or  what 
not.      Sometimes  engineers  are  to  blame  for  these  disputes;    sometimes 
contractors.    But  in  any  dealings  between  a  banker  and  a  contractor  such 
possible  contingencies  must  be  taken  into  account.     Some  of  the  most 
exasperating  "lock-ups"  that  have  been  known  in  the  history  of  banking 
have  arisen  in  this  manner.     Such  disputes  often  lead  lo  lawsuits;  and 
even  though  an  award  may  be  made  in  the  contractor's  favor,  a  delay 
of  years  may  transpire,  during  which  interest  has  been  accumulating  and 


134 


BANKING    AND    COMMERCE. 


costs  mounting  up,  while  the  nmounl  of  the  judgment  ma}^  be  far  IcM 
than  the  debt  due  to  the  bank. 

If  the  contractor  has  other  resources  than  the  capital  in  hi.  plant 
and  gives  the  bank  security  on  them,  all  may  be  well  in  the  end ;  if  not, 
the  result  may  be  that  the  "lock-up,"  or  a  considerable  portion  of  it, 
may  become  a  bad  debt. 

No  banker,  therefore,  will  consider  himself  safe  by  the  mere  fact 
that  he  has  security,  so  called,  in  the  shape  of  an  order  on  a  railway 
company  to  pay  him  what  they  owe  the  contractor,  if  the  order  be  in 
general  terms  and  unaccepted.*' 

But  all  advances  to  contractors  are  not  such  simple  nuitters  as  the 
foregoing.  Not  seldom  a  contractor  will  approach  a  banker  before  work 
has  begun  with  a  proposal  for  a  credit  of  a  round  amount,  having  no 
relation  to  any  specific  sum  as  earned,  or  to  be  earned,  in  m./  particular 
month.  And  the  banker,  knowing  him  to  be  a  man  of  good  standing, 
and  to  be  the  owner  of  real  property  in  the  neighborhood;  knowing  also 
that  he  understands  his  business,  and  that  his  account  may  yield  large 
ant'  profitable  transactions,  may  grant  such  a  credit.  Yet  a  portion  of 
tht.  n  jney  advanced  may  be  used  to  purchase  that  miscellaneous  collec- 
tin*.  ,,T  articles  known  as  a  contractor's  plant,  which  costs  so  much,  and 
is  ultimately  worth  so  little.  Or  there  may  be,  for  some  reason,  unusual 
delay  in  passing  the  accounts,  or  accidents  may  transpire  from  water, 
fire,  or  dynamite;  or  there  may  be  miscalculation  as  to  the  nature  of 
obstacles  to  be  overcome,  especially  in  deep  cuttings,  high  embank- 
ments, or  bridge  building.  Or  the  contractor  may  have  miscalculated 
the  cost  of  numerous  materials  he  requires  to  use;  in  fact,  the  casualties 
are  almost  innumerable,  and  what  position  the  contractor  may  be  in  by 
the  time  he  gets  to  the  end  of  his  work,  a  mere  lottery.  It  may  be  a 
fortune;  it  may  be  bankruptcy. 

All  that  is  said  in  regard  to  contractors  for  railways  applies  even 
a  stronger  degree  for  contractors  in  government  works.     And  for  tb:s 
reason,   that    whatever   delays  may  be  experienced  in  the  passing  of  a 
contractor's  account  by  a    railway  company,   they  are  sure  to  be  more 
protracted  in  a  government  department. 

The  habit  of  delay,  the  cumbrous  circumlocutory  system  which  in- 
heres in  all  government  offices,  which  it  is  vain  to  remonstrate  against, 
is  certain  to  bring  about  greater  delays  in  this  case  than  in  the  other. 
And  in  case  of  dispute,  the  engineer  or  inspecting  officer  of  a  govern- 
ment department  is  apt  to  be  more  exacting,  and  more  firmly  set  in  his 
opinions,  than  the  officer  of  a  railway  corporation,    Av^  in  case  the  dis- 


47  It  has  not  seldom  been  the  case  In  dlfflcult  times  that  a  contractor  could 
not  ffet  hia  certificate  p*ld.  even  niien  there  wax  no  dispute  about  it,  owlna  to 
the  i-omvaay  belnc  unable  to  float  bonds,  or  to  cet  oalts  i>aid,  or  to  malr*  tf- 
flclent  banking  arranflrMn*nt8.  Numerous  cases  of  this  kind  have  arisen  wh«r« 
the  worka  were  on  this  side  the  Atlantic  wh'lst  the  money  had  to  be  ralscA 
on  the  other. 


RAILWAY   LOANS.  ,gj 

But  the  ..„e  cnnol  be  ..id  of  .11  g„ver»,„.„„,  „  h„.  b«n  «.„. 


4** 


CHAPTER  XrUI. 

LOAMS  AUD  ADVAH0E8  TO  OOVEBJUIBIITB  AMD  MUMIOt 
PAL  OOBPOEATIOMS. 

ENOLAND— THt     UnITID     STAT..-FH4NC.-lN.0L«IiT     GoTIHNMCNI. 

or   Ekro«— Th«   Sepahati  Statu  of   th«    Uniok— Siparati 
Provinces  op  Canad.v— Mcnicipm  Corporation  Loans. 

THE  dealings  of  bankers  with  governments  have  peculiarities  of  their 
own,  and  at  times  are  so  important  that  the  whole  foundation  of  * 
banking  corporation  has  rested  upon  them.    This  was  the  case  with 
the  Bank  of  England,  the  very  purpose  of  whose  establishment  over  two 
centuries  ago  was  to  aid  the  finances  of  the  Government  of  the  day. 

By  the  terms  of  its  constitution  its  whole  capital  of  one  million  ster- 
ling was  loaned  to  the  Government  of  the  time,  and  this  primal  condition 
has  been  observed  down  to  the  present  day  through  all  the  changes  and 
vicissitudes  of  the  last  two  centuries.  Although  the  capital  of  the  bank 
has  been  increased  from  lime  to  time  until  it  now  Amounts  to  fourteen 
millions  sterling,  there  never  was  a  time  when  the  whole  of  it  was  not  lent 
to  the  Government.  The  debt  is  represented  by  those  Government  securl- 
Ues  which  regularly  appear  in  its  published  balance-sheet,  and  with  which, 
so  far  as  the  amount  of  its  capital  is  concerned,  it  cannot  part  without  a 
forfeiture  of  its  charter. 

In  consideration  of  this,  the  whole  business  of  the  Government  of  Eng- 
land—using  that  word  in  its  broadest  sense— has  always  been  done  with 
this  one  bank. 

The  Bank  of  England,  howevtr,  is  not  a  Government  institution,  u 
is  often  supposed.  It  is  distinctly  a  b^-king  corporation  with  its  own 
body  of  stockholders  who  elect  its  own  board,  appoint  its  own  office™, 
receive  dividends  out  of  profits,  and  hold  annual  meetings  exactly  as  do 
other  banks.  In  all  these  respects  the  Bank  of  England  is  on  the  same 
footing  as  an  ordinary  joint-stock  bank.  The  only  difference  is  that  in 
consideration  of  its  relation  to  the  Government  it  has  powers  of  circulation 
of  a  peculiar  kind,  as  opened  up  in  another  chapter. 

But  notwithstanding  that  the  Bank  of  England  is  not  a  Government 
institution,  the  fact  that  the  whole  financial  business  of  the  Government 
passes  through  its  hands,  has  always  been  held  to  constitute  a  claim  on  the 
part  of  the  Government  for  firfandal  assistance  should  it  ever  be  needed! 
and  that  in  prtfemrc  to  tht  commercial  commumi).  If  the  commercial 
community  were  urgent  for  discounts  at  the  same  time  as  a  Chancelloi 
of  the  Eichequer  was  urgent  for  advances,  there  can  be  no  question  which 
of  them  would  have  the  preference.    Yet  the  Instinct  of  self-preservatioB 


LOANS  AND  ADVANCES  TO  GOVERNMENTS. 


137 


li  ai  itrong  vltb  the  Governor  and  Company  of  the  Bank  of  England  ai 
it  is  with  the  directors  of  any  other  corporation,  and  that  would  undoubt- 
edly prevail  in  case  the  demands  of  the  Government  were  likely  to  endan- 
ger  its  existence.  This,  of  course,  has  been  well  understood  by  every 
Chancellor  of  the  Exchequer  from  the  beginning,  and  no  demand  would 
be  made  upon  the  bank  that  would  be  likely  to  bring  it  into  danger.  The 
bank  is  altogether  too  valuable  an  adjunct  for  any  Government  to  allow 
its  usefulness  to  be  imperilled ;  besides,  there  are  other  ways  in  which  thf 
Government  could  borrow  to  meet  pressing  emergencies,  such  as  the  issu- 
ing of  Exchequer  bills  and  so  forth.  Yet  undoubtedly  it  has  happened 
at  times  that  the  directors  of  the  bank  must  have  felt  their  position  with 
the  Government  to  be  burdensome,  notwithstanding  the  privilege  of  having 
its  notes  made  legal  tender.  A  natural  longing  for  freedom  to  use  their 
immense  capital  in  a  way  that  might  seem  agreeable  to  their  own  judg- 
ment as  directors  of  other  corporations  could  do,  would,  at  times,  almost 
of  necessity  arise,  and  if  it  did  so  arise,  would  be  pardoned. 

The  principle  of  lending  the  whole  capital  of  a  bank  to  the  Govern- 
ment prevails  also  in  the  United  States,  as  has  been  set  forth  in  another 
chapter.  Most  of  the  National  banks  lend  their  whole  capital  to  the 
Federal  Government,  and  receive  in  acknowledgment  bonds  for  the  amount 
The  banks  are  authorized  to  issue  circulating  notes  on  the  security  of 
these  bonds  and  every  possible  safeguard  has  been  devised  in  order  to 
render  these  notes  secure.  The  Government  retains  the  custody  of  the 
bonds,  thus  insuring  that  the  bank  cannot  dispose  of  them.  The  Govern- 
ment also  furnishes  the  notes  to  the  bank,  thus  insuring  that  the  proper 
amount  and  no  more  shall  be  put  into  circulation.  These  notes,  though 
absolutely  secured  by  tlie  Government,  were  never  made  a  legal  tender, 
the  reason  probably  being  that  the  Government  itself  became  an  issuer 
of  legal-tender  circulating  notes,  and  is  so  to  this  day. 

The  Bank  of  France  has  a  more  intimate  connection  with  the  Govern- 
ment of  the  day,  whatever  its  character  might  be,  than  the  Bank  of  Eng- 
land. The  Government  is  always  represented  influentially  on  its  board, 
so  that  the  obligation  to  meet  its  necessities  bears  upon  it  with  even  a 
stronger  pressure  than  in  the  Bank  of  England.  Still,  the  Bank  of 
France  is  not  a  department  of  the  Government,  and  its  advances  must  be 
regulated  in  the  last  instance  by  the  all-prevailing  law  of  self-preserva- 
tion. 

It  might  be  supposed  that  advances  to  governments  must,  in  the  nature 
of  tilings,  be  safe.  But  experience  teaches  some  bitter  lessons  in  this 
respect.  All  governments  are  not  like  the  Government  of  England.  There 
have  been  times,  revolutionary  limes  of  course,  when  the  obligations 
even  of  the  Government  of  France  became  utterly  valueless,  and  iti 
promissory  notes  so  depreciated  that  a  thousand  francs  of  them  would 
hardly  buy  a  loaf  of  bread.  Yet  these  were  secured  by  assignments  of 
Government  lands,  and  hence  bore  the  name  of  attignatt.  A  similar  state 
of  things  prevailed  in  revolutionary  times  on  this  Continent  when  what 


BANKING   AND   COMMERCE. 


I 

'I 


w«t  known  u  Continental  money  of  the  revolting  coloniet  became  ai  much 
depreciated  at  the  atifgnata  of  France. 

Of  this  itate  of  things  we  have  seen  a  repetition  in  recent  times  with 
regard  to  notes  issued  hj  the  revolting  Southern  States.  These  became, 
ever^  one  of  them,  absolutely  worthless.  It  is  well  known  In  the  higher 
circles  of  finance  In  Europe  that  the  Government  of  Spain  has  more  than 
once  compromised  with  its  creditors,  exactly  as  a  merchant  does  when  he 
cannot  pay  his  debts.  What  is  more,  that  Government  has  even  com- 
promised on  its  compromise. 

At  this  very  time  t1>r  Government  of  Turkey  is  under  heavy  default 
on  its  obligations,  and  it  it  were  a  railway  company,  we  should  say  It  was 
in  the  hands  of  a  recdver.  A  certain  portion  of  Its  finances  are  adminls* 
tered  by  representatives  of  its  bondholders,  comprising  French  and  Eng- 
lish capitalists,  each  of  whom,  in  terms  of  a  year  about,  receives  certain 
allocated  revenues,  and  after  appropriating  a  certain  sum  for  the  interest 
on  bonds,  pays  over  the  balance  to  the  Turkish  Government,  if  there 
be  any. 

A  government  is  unlike  any  other  debtor  in  this  respect,  that  if  de- 
fault  is  made,  there  is  no  mode  of  compelling  payment  except  by  going 
to  war.  In  all  ordinary  cases  of  debt  the  remedy  is  to  appeal  to  the 
judgment  of  the  court,  which  judgment  will  be  enforced  against  the 
debtor  by  the  Government  But  when  a  Government  itself  is  the  debtor, 
there  Is  no  higher  authority  to  appeal  to,  unless  in  these  times  the  interna- 
tional tribunal  of  The  Hague  may  be  considered  such.  But  how  could 
that  tribunal  enforce  its  decisions  ?  Nothing  but  the  terrible  arbitrament 
of  war  will  meet  the  ca«e.  Now,  private  persons,  no  matter  how  rich  and 
powerful,  cannot  levy  war.  Their  case  must,  therefore,  if  it  is  to  be 
enforced  at  all,  be  taken  up  by  their  own  Government,  which  if  payment 
is  refused,  can  declare  war,  seize  custom-bouses  and  ships,  and  bring  the 
whole  machinery  of  the  defaulting  Government  to  a  stand.  This  was  the 
futioti  d'etre  of  the  measures  taken  against  the  Republic  of  Venexeola  by 
Germany  and  England  in  1909. 

Bankers  therefore  who  keep  accounts  with  governments  and  make 
advances  to  them  have  always  this  risk  to  reckon  with.  They  cannot  com- 
pel payment.  Even  if  a  government  endeavors  to  satisfy  the  bank  by  an 
issue  of  bonds,  there  are  difficulties  and  disadvantages  even  in  this  simple 
process.  If  the  Government  is  a  constitutional  one,  bonds  cannot  be 
Issued  without  authority  of  Parliament;  and  such  an  issue  may  become  a 
matter  of  fierce  contention  between  opposing  parties,  may  be  ddayed 
indefinitely,  or  refused  altogether.  Or  If  the  government  has  succeeded 
in  obtaining  authority  to  negotiate  a  loan,  it  may  have  already  exhausted 
its  credit,  in  which  case  it  cannot  press  more  bonds  upon  the  market 
without  a  heavy  sacrifice.  Canada  itself  before  Confederation,  consist- 
ing only  of  Upper  and  Lower  Canada  (corresponding  to  the  present 
Provinces  of  Ontario  and  Quebec)  had  sunk  so  low  in  credit  that  its 
London  agents  were  unable  to  place  further  loans  upon  the  market  ex- 


I.OAXS  AND  ADVANCES  TO  GOVERNMENTS.         1S9 

■Mpt  «t  a  hcavj-  inrrifirr.  Time  ngrnis  ln-ing  undrr  Iitnvy  ndvancci 
themirlvri,  at  one  time  abioliitely  rrfiiaed  to  inerpnie  tlieie  advanrei,  and 
wrote  letter!,  al  may  be  leen  in  the  Blue  Booki  of  the  time,  to  tlie  Finance 
Miniiter  of  Canada  eouehed  in  terms  eiaetly  limilnr  to  tliojc  employed  by 
a  banker  to  a  debtor  whole  bilU  were  overdue.  It  w.ii  natural,  therefore, 
onder  theie  eireumitanee.  that  the  bankeri  of  the  Government  in  Canada 
•hould  be  ealled  on  for  advonees  to  a  constantly  increasing  amount,  which 
advances  becoming,  at  length,  really  embarrassing,  led  to  coniuliationi 
and  conferences  which  finally  ended  in  the  proposal  for  a  Government 
Issue  of  circulating  notes.  The  present  legal-tender  note  issue  of  the 
Government  of  Canada  had  its  origin  in  this  way. 

Since  this  great  settlement  the  credit  of  the  Government  of  Canada 
has  steadily  improved,  and  its  Imnd  issues  are  almost  on  as  high  a  level 
as  those  of  England.  Its  relaUons  with  its  bankers  have  therefore  never 
since  ceased  to  be  satisfactory ;  and  at  times  when  other  Canadian  banks 
have  been  ealled  on  to  co-operate  in  placing  loans  on  the  London  market, 
they  have  gladly  consented  to  do  so.  It  ii  to  be  noted,  however,  that  the 
Government  of  Conada,  through  all  the  periods  of  slroin  and  stress  of 
commercial  and  financial  depression  has  never  failed  to  meet  the  interest 
on  its  bonds  to  the  day. 

There  are,  however,  other  forms  of  Government  advances  than  those 
referred  toj  namely,  those  of  the  separote  States  of  the  American  ITnion, 
or  of  the  separate  Provinces  of  the  Dominion  of  Canada.  Each  of  these 
las  its  own  financial  system.  It  levies  taxes  within  certain  limiU,  coUecU 
and  disburses  revenue,  and  places  bonds  upon  the  market  exactly  in  the 
same  manner  as  an  independent  State  does.  Each  is  a  separate  financial 
entity,  and  has  a  character  and  credit  of  its  own. 

The  Provinces  of  Conada  differ  widely  in  their  financial  position;  but 
all  have  maintained  a  reputation  for  meeting  interest  on  their  bonds  with 
as  much  regularity  as  the  Dominion  Government  itself.  Nevertheless, 
there  would  be  a  wide  difference  of  judgment  in  the  case  of  an  application 
for  loans  as  between  one  Province  and  another.  This  matter  is  well 
understood  by  financiers. 

As  to  the  mode  in  which  pressure  could  be  brought  to  bear  in  case  of 
difficulty  or  embarrassment,  an  appeal  in  Canada  would  undoubtedly  be 
tnade  to  the  Dominion  Government,  which  Government  possesses  powers 
in  the  way  of  compulsion  in  the  fact  of  its  granting  subsidies  to  the 
different  Provinces.  The  cose  may  never  arise  when  the  question  of  with- 
holding a  portion  of  these  subsidies  to  meet  the  claims  of  creditors  may 
become  a  practical  one.  Nevertheless,  it  is  conceivable  that  under  circum- 
stances, say,  of  exceptional  extravagance  in  expenditure  on  the  part  of  a 
particular  Province  and  consequent  default,  the  claims  of  the  creditor! 
may  be  carried  before  the  higher  power  and  demand  made  that  prcMure 
be  put  upon  the  defaulting  Province. 

In  this  respect  the  Canadian  Provinces  differ  from  the  States  of 


1 


I 


140  BANKING    ANU    COMMERCE. 

AmiVlo.  The  l«tt<r  rrccivc  no  lubvMitloni  from  the  Frdcril  Govcni- 
Dent,  and  their  finnnoei  «re  on  «n  entirely  Independent  bsiii. 

It  may  be  laid  down  ai  a  general  principle  that  the  advance!  of  a  bank 
to  a  Government  need  to  be  regulated  by  the  tame  fundamental  rulea  aa 
tboie  to  a  municipality  or  a  buiincfi  corporation.  A  prudent  banker 
dealing  with  a  Govemmenl  will  keep  advance!  down  to  iuch  a  level  that 
they  can  be  repaid  out  of  the  year'i  revenue.  Theie  advance!  ahould 
alwaya  be  repreaented  by  and  reit  upon  thi!  auet  within  aight;  with  the 
exception,  of  courae,  of  advance!  in  anticipation  of  the  floating  of  a  duly 
authoriied  loon ;  in  which  caie  the  lole  matter  for  eonalderation  will  be 
whether  it  ii  likely  to  be  lueceufnlly  placed  upon  the  market. 

But  in  the  caac  of  a  Government  undertaking  great  work!  of  con- 
Itruction,  !uch  al  Canada  hal  more  than  once  undertaken,  to  ita  embar- 
raiiment,  a  banker  will  be  careful  le!t  hi!  advance!  do  not  eventuate  in 
a  "lock-up"  which  ia  embarra!!ing  to  himielf. 

I.OANH    TO    Ml'NICIPAL    CoHPOBATION!. 

Thi!  i!  s  branch  of  banking  advance!  in  which  griivouB  uiisliikii 
have,  It  time!,  hein  made,  and  re«pecting  which  it  ii  doirnbic  to  act 
according  to  fivd  nilea  !Ugge!ted  by  experience. 

It  will  be  found  on  con!iderntion  that  the  lame  general  rule!  and  con- 
lideration!  apply  here  that  need  to  be  obaerved  in  other  line!  of  banking 
advance!.  In  the  bu!ine!!  of  a  corporation,  aa  in  that  of  a  manufacturer, 
there  are  expenditure!  on  permanent  worka,  and  expenditure!  which  may 
be  termed  "current  and  annual." 

It  i!  evident  that  the  lir!t  claa!  of  expenditure!  !hould  be  repre!ented 
by  bond!  !prcad  over  a  term  of  year!,  and  that  only  expenditure!  of  ■  tem- 
porary character,  reating  upon  collectible  revenue,  !bould  be  repreiented 
by  loan!  from  banka.  With  theae  two  leading  principle!  kept  well  In  mind 
a  bank  may  ateer  it!  way  aafely  through  thi!  clai!  of  bu!inei!. 

There  are  enterpriaini;  corporation!  a!  there  are  enterpriaing  manu- 
facturer!, and  the  readleit  way  of  obtaining  money  for  achemei  of  im- 
provement and  eitenaioi.  ia  to  apply  to  the  bank  where  the  aceoont  ia  kept 

Now,  there  are  expenditure!  regularly  going  on  In  every  municipality 
to  provide  for  which  an  annual  levy  of  taiea  i!  made.  It  ii  obriona  there- 
fore that  a  bank  may  reaaonably  make  advance!  to  the  amount  of  auch 
levy,  pending  the  coll:  on  of  taiea,  of  courie,  with  a  fair  allowance  for 
auch  al  are  not  collected  or  collectible. 

But  expenditure!  for  permanent  improvement!  can  rarely  be  provided 
for  out  of  the  annual  levy.  The  money  required  ahould  therefore  not  be 
borrowed  from  a  bank,  unleii  indeed,  bond!,  duly  authoriaed,  are  about 
to  be  put  on  the  market,  and  a  loan  ia  deiired  in  anticipation.  In  that 
caae  the  banker'!  buiinei!  will  be  to  !ee  that  the  bondi  are  lueh  aa  are 
likely  to  find  favor  in  the  market. 

But  even  during  the  currency  of  a  year,  a  banker  may  need  to  be 
careful  about  the  amount  he  advance!.    An  era  of  extravagance  will  aome- 


LOANS  AND  ADVANCES  TO  GOVERNMENTS. 


limet  wt  in  with  >  municipallt/  under  the  regimr  of  an  enterpriainf  major 
or  catmcU,  eiaclly  ai  It  may  with  an  Individual.  In  that  caac  there  will 
be  itrong  prcuure  put  upon  a  corporation  banker  to  extend  hii  adrancei 
brjond  due  boundi.  He  will  then  need  to  remember  that  there  are  ehargM 
upon  the  income  of  the  manicipalltj  which  lalu  precedence  of  hia  adrancea. 
Wagea  of  employeca,  for  example,  and  intereat  on  bonda;  theae  cannot 
be  left  In  abeyance.  For  It  hai  been  the  juit  pride  of  Canadian  municl- 
palitiei  (with  one  or  two  eiceptlona  after  the  rollapie  In  the  Northweit) 
that  tbrj  never  made  a  default  In  their  bonda,  either  of  intereat  or  prin- 
cipal. 

In  carrying  on  the  account  of  a  corporation  a  banker  will  need  to 
keep  the  foregoing  In  view.  He  will  alio  be  careful  not  to  allow  one 
year'*  advsncn  lo  be  carried  over  Into  another.  Each  year  ahould  atand 
on  Ita  own  foundation. 

This  la  the  regular  and  normal  working  of  advancea  to  corporationa. 
But  both  in  timca  of  proiperily  and  adveriity  there  are  apt  to  ariie  clrcum- 
•tancea  which  militate  againit  it.  In  times  of  expansion  and  prosperity 
when  a  close  watch  is  not  kept  over  the  finances  by  corporation  officials, 
expenditures  of  a  lixed  character  sometimes  get  so  mixed  with  those  that 
are  temporary  that  the  moneys  advanced  for  the  one  may  become  locked 
up  In  the  other.  Thia  is  especially  the  case  when  advances  are  made  in 
the  form  of  an  overdrawn  current  account.  Nothing  is  more  easv  than  for 
a  treasurer  or  finance  committee  to  issue  checks  ad  lihitan,  the  result  of 
which  Is  that  the  banker  finds  himself  at  the  close  of  a  corporation  year 
with  a  heavy  undischarged  debt. 

This,  of  course,  may  not  give  a  banker  the  same  anxiety  aa  if  the  debt 
were  against  a  mercantile  firm.  A  corporation  cannot  go  out  of  business 
as  a  merchant  can ;  and  the  cases  of  corporations  being  absolutely  unable 
to  pay  their  debta  have  been  extremely  rare.  Usually  the  worst  conse- 
quence of  abnormal  adra.icea  is  that  a  certain  amount  of  money  is  locktd 
up.  Now,  though  a  "lock  up"  is  not  the  same  as  a  bad  debt  in  Its  ultimate 
consequences,  it  may,  ,f  large  enour''  be  a  cause  of  real  embarrassment. 
It  may,  however,  be  thought  that  Vcr's  advances  can  olways  be  pre- 

vented from  becoming  embarraaaing  t^  a  corporation  issuing  bonds,  or  In 
a  last  resort,  exercising  the  power  of  Uxation.  There  are,  however,  serious 
limitations  to  both  of  these  plans.  Corporations  cannot  Issue  bonds  except 
within  the  llmiU  of  their  charter  or  the  general  law.  If  attem,  >ta  are  made 
to  extend  such  powers,  the  ratepayers  are  very  apt  to  initiati  apposition. 
With  regard  to  taxatior  the  same  objection  would  apply  in  even  stronger 
form.  Nothing  provokes  more  determined  opposition  than  undue  increase 
of  taxation. 

The  only  mode  left  under  such  circumstances  is  a  considerable  re- 
trenchment of  expenditure;  but  that,  too,  is  a  very  dilEcult  process,  aa 
anyone  connected  with  mmiicipal  matters  knows  well. 

A  banker  therefore  who  has  incautiously  allowed  his  advances  to  drift 
into  this  position  may  have  the  morti6cation  of  finding  it  impossible  ta 


ti,,. 


IM 


BANKING    AND    COMMERCE. 


collect  for  ycAri  the  Amount  due,  and  of  bring  under  the  neccMtty  of 
eorUlling  advancei  to  mercantile  euttomeri.  AH  that  hai  been  observed 
with  regard  to  thl«  matter  ie  founded  on  actual  experience. 

The  total  anwunt  which  a  municipal  corporation  majr  prudently  bor- 
row, that  ii  In  a  permanent  form,  U  a  queition  on  which  dilTcrent  opiniona 
may  be  and  have  been  entertained.  It  generally  reiolvei  itielf  into  » 
question  of  m  much  per  capita  of  population.  But  here  diitinctions  must 
be  made.  For  lome  munleipalitiei  are  so  much  wealthier  than  others,  as 
a  whole,  that  ^n  amount  per  capita  that  would  be  a  serious  burden  to  one 
would  rest  lightly  upon  another.  But  the  limit  of  safety  will  be  found, 
as  a  rule,  to  lie  bet.veen  sixty  and  eighty  dollars  per  capita:  the  former, 
let  us  say,  in  the  case  of  a  municipality  hnving  a  considerable  population 
of  artisans,  and  the  latter  where  a  much  larger  percentage  consists  of  the 
well-to-do  class;  such,  for  example,  as  towns  resorted  to  for  the  purposes 
of  health  or  recreation,  or  which  are  agreeable  places  of  residence  for 
persons  of  competence.  Suburban  towns  within  reach  of  a  great  city 
ean  bear  a  higher  rate  of  debt  per  capita  than  many  others;  but  there 
have  been  on  this  Continent  (but  not  in  Canada)  some  striking  instances 
of  extravagance  in  such  places  under  the  regime  of  an  enterprising 
mayor  or  council,  when  new  streets,  squares  nnd  boulevards  were  made  in 
advance  of  population,  burdening  the  existing  inhabitants  to  soeh  an 
extent  that  the  taxes  became  intolerable,  and  compelled  many  of  them  to 
leave  the  place  altogether.  Thus  the  expenditure  defeated  its  object 
Population,  instead  of  being  attracted,  was  driven  away,  so  that  those 
who  had  property  in  the  place  and  could  not  leave  were  compelled  to 
allow  the  bonds  of  the  corporation  to  go  Into  default  Under  such  a  elond 
as  this  an  attractive  municipality  might  lie  for  years,  its  bonds  becoming 
for  a  time  almost  worthless  until  some  forced  arrangement  was  made  with 
creditors  that  lightened  the  burden  of  taxation,  and  enabled  the  natural 
advantages  of  the  locality  to  assert  themselves  and  bring  in  population. 

Such  a  state  of  things  as  this  would  scarcely  arise  until  the  mnniclpal' 
iebt  bad  increased  to  more  than  a  hundred  dollars  per  capita. 

Sometimes,  in  a  large  and  prosperous  city,  under  the  regime  of  an 
enterprising  board  of  aldermen,  great  works  of  improvement  would  be 
planned  and  carried  out  year  after  year  that  added  nothing  to  the 
revenue  of  the  city,  while  they  added  immensely  to  the  burden  of  taxation. 
Such  expenditures  might  at  length  become  so  serious  as  to  arouse  organ- 
ised resistance  on  the  part  of  the  property-holders,  and  appeals  to  the 
Legislature  to  limit  the  borrowing  power  of  the  municipality.  Under 
circumstances  such  as  these,  if  a  bank  went  on  making  advances  on  open 
account,  there  might  be  danger  of  such  advances  being  declared  to  be 
beyond  the  limit  of  the  law,  and  considerable  difficulty  might  arise  as  to 
liquidation. 

The  above  observations  as  to  the  limit  within  which  the  debt  of  a  mnni- 
cipality  should  be  kept  are  of  course  irrespective  of  expenditures  of  a 
remunerative  character.     If  a  municipality  borrows  for  the  purpose  of 


LOANS  AND  ADVANCES  TO  GOVERNMENTS.         u» 
But  eiperience  ihowi  that  ■  miuiiclDalitT  hu  .1-...      .    j 

ch«k.  upon  borrowing"  ^  '"PO'I"*,    when    nerfed,    ,trtag«,t 

«««  .i»i]  b.  i„uM.,«  „„,  „,  i.  p^™a?"  "This!,'?'""'  ""'  ■"*  "• 

—lOT  until  .  »,,  „  .u*^    I„  .11  ™AM        ,"'!  ""  "'"'"  "  <•<•  <""  PM- 
"l.«  .ll^  u,OM  tt.,  „  „"7„  „^,^  Sl'^'^jf"  '"^"^  '">■»  '"""'n. 


•'■11 


CHAPTER  XIX. 

LOANS  OH  STOCKS  AMD  BONDS. 

Growth    o,    Thi.    Bhanch    oi-    I.£Nd.n<.-C»m.    Loan.-Loani    os 

Time. 
n-«HIS  branch  of  banking  loans  ha.  come  into  great  prominence  of  lale 
1  year,  on  both  aide  of  the  AUantic,  owing  to  the  increaamg  difficul- 
ty of  obtaining  Mlisfaclory  commercial  loan,  and  diKOUnti.  Ihe 
imn,en.e  increaae  in  the  deposit.  entru.tedtoCanadlan  bank.  ha.  more  ^ 
kept  p«:e  with  the  increaK  of  .atiafactory  con.merc.albu..ne..;hence,w.th 
many  bank.,  the  larger  one.  c.pecially,  it  h"  1>«™""=  «  ««"'"':''' 
of  ba.ine..  to  make  advance,  on  the  .ecurity  of  bond,  and  .tock.;  not  that, 
M  a  rule,  they  have  deliberately  pa..ed  by  commerewl  bu.,ne..  in  order 
"  enter  upon  thi.  branch.  No  bank  ha.  a  right  to  do  th..,  for  the  very 
object  for  which  bank,  are  chartered  i.  to  promote  trade  and  =«^'«- 
It  i.  only  when  thi.  requirement  i.  fulSUed  that  bank,  can  fairly  enter 
upon  thi.  other  field  of  enterprUe.  To  put  it  in  one  word:  .t  '•  «>ly  *' 
b^ker'.  .pare  fund,  that  can  be  properly  «,  employed.  The  amount  of 
,uch  .pare  fund,  varie.  with  the  course  of  business  and  the  .eaMn  of  th. 
year,  but,  generally  .peaking,  there  i.  alway.  .ufieient  »•  «»g«(!«  "-"« 
La.ure  of  a  Unker'.  attention,  and  to  make  it  important  that  he  .hould 
maater  the  principle,  on  which  loan,  .hould  be  earned  on. 

There  are  two  very  important  difference,  in  thi.  das.  of  buaine... 
u.ually  exprced  by  the  term,  "loan,  at  caU,"  or  "loan,  on  time.  There 
is  also  a  distinction  between  "loan,  on  bonds    and    loan,  on  rtock.. 

Loan.  o8  Call. 
By  far  the  larger  part  of  theK  are  .ecured  by  .tock.,  of  wMch  there 
i.  in  Canada  a  comparatively  .mall  range  to  chooae  from.  Loan,  on 
bank  rtock.  have  been  prohibited;  for,  when  permitted  they  «■«  "« 
to  dangerou.  .peculation.  There  remain.,  therefore,  only  *«  -lofk.  of 
..Uway.,  .hipping  companie.,  and  industrial  enterpri«s.  A  b«nk«  >" 
a»ling  ;ilh  Aese  wiU  do  well  to  make  it  a  ml.  to  lend  on  no  ^oct  <».. 
i,  JlMci  and  reg.l«rl,  ,.ol«rf.  He  wUl  require  a.  a  minimum  a 
margin  of  ten  per  4nt.,  but  the  higher  the  price  the  larger  perc»Uge 
of  margin  he  will  exact.  In  fact,  when  a  .tock  i.  obviou.ly  ^^'f'^ 
will  do  well  to  fix  a  definite  limit  to  hi.  advance.,  no  »»"«'  ho"  Mf  •"  «« 
.tock  may  be  quoted.  Thi.  U  a  cardinal  rule,  and  it  wUl  be  found  very 
d«.gerou.  to  depart  from  it.  He  will  be  careful  to  have  a  .uUt«,UJ 
i«m.»er,  and  avoid  dealing  with  impeeuniou.  .peculator.,  no  matter 
how  good  the  Kcurity  may  seem  to  be.  And  he  will  keep  his  eye  npon 
lu 


LOANS  ON  STOCKS  AND  BONDS. 


the  fluctuatioiu  of  the  market,  and  take  means  to  keep  well  informed  of 
the  doings,  ipecolationi,  and  schemei  of  the  principa;  operators.  He 
will  do  well  to  observe  certain  rules  or  traditions,  the  result  of  experience, 
which,  when  applied,  will  rule  out  wrong  classes  of  securities  altogethei. 
The  greater  part  of  call  loans  will  be  to  stock  brokers.  Loans  to  them 
are  prima  facie  safer  than  to  principals,  for  the  reason  that  they  them- 
selves have  a  principal  behind  them  on  whom  they  can  call  if  needful.  A 
banker  dealing  with  brokers  is,  therefore,  almost  in  a  position  of  having 
a  double  security,  besides  the  stock  itself.  A  banker  will  take  care  to 
have  his  risks  rrell  diitributed,  not  only  amongst  persons,  but  amongst 
stocks.  He  will  take  care  not  to  hare  too  much  loaned  on  any  one 
stock,  otherwise  he  may  6nd  to  his  annoyance  that  he  has  been  a  party 
to  some  scheme  for  inflating  a  stock  beyond  a  reasonable  value.  He  may 
then  be  caught  in  a  reaction,  and  find  that  he  has  locked  up  his  money, 
instead  of  having  it  at  his  disposal  on  a  day's  notice.  In  a  limited  market 
like  that  of  Canada,  a  banker  will  need  to  be  careful  not  to  have  too 
much  money  out  upon  it.  Experience  has  proved  that  this  market  cannot 
stand  any  vn-y  heavy  strain  of  calls  for  money,  especially  on  stocks 
that  have  a  local  value  only. 

Some  stocks  there  are  on  w  iiich  money  can  always  be  obtained  in  New 
York  or  London.  These,  of  course,  can  bear  a  much  heavier  strain  of 
call  than  the  rest.  But  if  advances  rest  on  stocks  that  are  not  known  in 
New  York  or  London,  the  calling  In  of  loans  may  sometimes  result  as 
"the  calling  of  spirits  from  the  vasty  deep"  by  the  Welsh  bard  was  said 
to  do. 

But  much  of  the  money  lent  on  call  by  Canadian  banks  is  through 
offices  in  New  York.  There  the  field  is  immensely  greater.  There  is  a 
much  greater  variety  of  quoted  stocks,  the  changes  in  which  are  known 
f«r  more  rapidly  than  is  the  case  in  Canada.  There  are  large  numbers  of 
brokers  of  solid  means  and  standing,  who  are  well  able  to  stand  the 
changes  and  even  shocks  of  the  market,  as  has  been  repeatedly  proved. 
The  tone  of  honor  amongst  this  class  is  high.  If  colls  for  money  are 
made,  it  is  a  point  of  honor  to  respond  at  once;  and  if  the  call  is  for 
more  margin.,  it  is  at  once  lodged.  No  complaint  is  ever  made  cither  of 
the  suddenness  or  the  amount  of  any  call;  or  even  of  the  sale  of  stock  In 
case  the  call  is  not  responded  to — a  rare  event,  however. 

The  great  objection  to  the  New  York  market  is  the  rapid  changes 
in  the  rate  for  money,  and  the  fact  that  the  rate  may  be  as  low  as  two  to 
three  per  cent,  for  months  together.  Then,  in  a  remarkably  short  time, 
the  market  may  assume  such  a  condition  that  rates  of  ten,  fifteen,  or 
even  twenty  per  cent,  per  annum  are  paid  without  grumbling.  This  state 
of  the  market,  however,  rarely  lasts  more  than  a  few  days,  or  a  few  weeks 
at  most;  and,  during  its  continuance,  a  vast  amount  of  clearing  out  of 
weak  speculstors  usually  takes  place. 

The  New  York  market,  as  Is  well  known,  is  occasionally  Tistted  by 


146 


BANKING    AND    COMMERCE. 


tpasms  and  cataclysms.  Memoriei  of  "Black  Fridays'*  still  linger  abont 
Wall  Street  (as  indeed  they  do  about  Lombard  Street),  but  these  spasms 
are  not  so  common  now  u  formerly.  They  depend  partly  upon  the 
money  market  itself.  A  continued  period  of  very  tight  money  will  result 
in  sharp  spasmodic  movements  in  which  a  fall  of  twenty  to  thirty  per  cent 
(or  even  more  in  some  cases)  will  take  place  along  the  whole  line  of 
stocks  in  a  single  day.  Yet  so  solid  is  the  underlying  stratum  that  It 
has  been  known  again  and  again  that  banks  having  large  sums  out  "at 
call"  have  found  themselves  at  the  end  of  a  most  convulsive  day  in  just 
as  good  a  position  as  at  the  beginning.  Their  calls  for  margin  or  for 
payment  had,  in  every  case,  been  responded  to,  and  not  a  single  failure 
occurred  amongst  the  circle  of  their  customers. 

Loans  on  Time. 

The  principal  point  of  difference  between  call  and  time  loans  Is  that 
the  latter  are  more  nearly  analogous  to  the  ordinary  loaning  operations 
of  the  bank,  and  are  not  a  mere  employment  of  funds  that  may  be  wanted 
at  any  time,  and  must  be  at  command  on  a  day's  notice. 

A  banker  who  is  purposing  to  make  loans  on  time  will  consider 
whether  the  prospective  state  of  his  finances  warrants  this  mode  of  em- 
ploying his  funds.  He  will  also  scrutinize  the  security  more  carefully 
and  avoid  such  stocks  as  have  a  tendency  to  considerable  fluctuations 
during  a  given  course  of  months.  It  has  happened  to  a  lender  of  money 
on  time,  that  circumstances  transpired  making  it  most  desirable,  and  in- 
deed necessary  for  safety,  to  call  in  the  loan.  But  being  precluded 
from  doing  this,  he  was  compelled  to  allow  it  to  run  on  and  so  to  submit 
to  a  loss.  Loans  on  time  are  often  advantageous  to  a  banker  with  whom 
money  is  plentiful,  when  the  rate  he  can  command  is  good.  He  is  saved 
from  the  trouble  attendant  on  the  constant  changes  involved  in  dealing 
with  call  loans,  and  will  sometimes  have  the  satisfaction  of  having  hii 
funds  out  at  a  higher  rate  than  call  loans  are  bringing.  Of  course,  hii 
experience  may  be  the  contrary. 

There  is  one  fundamental  rule  which  experience  has  suggested  in 
dealing  with  loans  on  stocks,  viz.,  that  it  is  never  desirable  to  lend  tliiect 
to  the  promoter  of  a  company  or  to  the  man  who  owns  and  controls  the 
majority  of  the  stock  in  it. 


CHAPTER  XX. 
THE  OISOOUNTINO  OF  TRADE  BOLS. 

Bank-B.iu  upon   B,a.vchm  of   th.   S*m.   Hou..-Bit«   o> 
S.r.m-  Ao,NT.-B.L,..  op  W„ol„a.„.  on   H.tml„-,-B,l:, 

or   MANl-PACTlBEm  o.V   MERCHANT!. 

'T'RADE  bill,  ordinarily  (though  there  aro  other  cl...„)  „e  rrpre- 
X  «„Ufvc.  of  «,!«,  and  .ri.e  .1  th.  point  where  .  b<,rg„i„  f„, 
purch.K  of  a  commodity  ha.  keen  eon,ua>mated,  and  the  property 
.0  it  h..  pa.,ed  to  the  p„reha.er,  who  ha.  given  a  written  promi.^  to 
pay  for  ,t.  That  promiw  to  pay,  in  accordance  with  univerwl  modem 
practice   .,  wr.tlen  on  a  brief  docoment  eaUed  varioualy  a  note  or  .  biU 

or  diZ'^'f  ''T'"  '■  '"  "■'  '"^  "'  ■"  •«'?'•"«  of  an  order 
or  d.  ection  to  pay.     It  i,  then  called  a  bill.     But  when  it  U  a  .impl. 

™Jif  ,?''.""'"'  "'  P"'"'?""?  "«««  of  form.  Th. 
ewenee  of  all  .„ch  doe.ment.,  when  legitimate  and  regular.  I.  that 
certain  good,  have  been  bought,  and  that  the  purchaae,  ha.  given  written 
engagement  to  par  for  them.  ' 

.Vow,  when  ,uch  document,  are  what  they  purport  to  be,  uid  .» 

fiJe.  of  the  document  though  not  of  it.  legality),  the  buaine,.  of  a  bwAor 
to  deal.ng  with  one  of  them  i,  comparatively  .imple.  He  ha.,  in  the 
6r..  place,  to  be  „ti.fied  that  the  .ignatnre  of  the  maker  or  ie  eptor 

company,  he  i.  bound  to  enquire  whether  he  ha.  authorit,  to  bind  hi. 
Z-",^'J"'  ■'^'"""-  """«  •""■"'^  <■"  "«  P"'"'.!"  will  "exl 
the  law.     For  the  law  in  rcpect  of  thee  .impl.  looking  document,  i. 

re:d^3e„;in-n;'"a':racr " "  '^*" "-'' '"  --  - 

Byle.  on  Bill,  of  Exchange  i,  a  well  known  handbook.  Yet,  though 
containing  hundred,  of  page.,  it  i.  .o  far  from  exhau.ting  the  .„S 
that  hundred,  of  e„e.  have  been  argued  and  decided  .Inee  it  wa.  writ^n 
the  record  of  which  would  occupy  many  volume,  more.  Th.  7m^ 
appear,  to  b.  unfathomable,  for  new  ca„.  are  con.tantlv  ari.ing  i^™^ 
tag  new  con.ider.tion,  b..ed  on  new  .et.  of  facU,  and  deman'dtor  if 
not  new  law.,  new  application,  of  thoM  already  eiirttag 

The  more  ab.tru.e  point,  connected  with  no"te.  and  bill,  are  matter, 
for  (he  con.,der«tio„  of  a  lawyer  alone,  and  a  b«.k.,,  if  he  i.  wi*,™" 


ii    ■■11 


jSl 


14t 


BANKING   AND    COMMERCE. 


.n 


let  hii  solicitor  deal  with  them.  But  there  are  certain  general  principles 
which  every  banker  ought  to  have,  lo  to  ipeak,  "at  hit  fingers'  ends," 
via.,  that  the  document  shall  not  have  been  aUered  in  any  essential  point; 
that  is,  as  to  amount,  or  date,  or  time,  or  the  perftm  to  nkom  it  is  pajfoble. 
or  the  person  who  promitet  to  pat/;  also  that  it  promises  to  pay  a  apeeifie 
amount  at  a  epecijied  time,  and  without  any  condithn*;  also  that  it  is 
properly  endorsed.  All  these  are  of  the  essence  of  the  document.  It  is 
not  a  bill  that  ean  be  sued  on  by  a  banker  if  there  is  a  failure  in  one  of 
these  respects,  although  the  seller  of  the  goods  would,  always  have  the 
right  to  recover  on  his  contract. 

But  a  bill  may  be  made  in  perfect  accordaiicc  with  the  law,  and  the 
person  who  brings  it  to  the  liank  may  have  a  perfect  riglit  to  transfer  it, 
and  yet  it  may  not  be  a  de«',i'ble  document  for  him  to  discount.  The 
person  promising  may  not  be  what  is  generally  called  "good"  for  its 
amount;  which  brings  up  once  more  a  commercial  question  whether  the 
seller  of  the  goods  was  wise  in  selling  him  so  large  an  amount  on  credit 
as  he  has  done. 

It  is  a  banker's  business  to  keep  informed  as  to  the  whole  series  of 
bills  made  by  any  one  promissor  standing  in  his  books,  to  keep  the  total 
in  mind,  and  to  consider  not  the  single  document  presented  to  him  at 
any  one  time,  but  t!ie  amount  of  the  whole  of  the  bills  made  by  this  one 
person  or  firm  that  may  be  afloat.  And  this  brings  up  another  point  of 
vital  importance,  vis.,  whether  the  bank's  customer  keeps  more  than  one 
bank  account.  For  in  that  case  the  banker  will  need  to  keep  himself 
informed  of  the  amount  of  bills  p»sde  by  the  same  party  that  are  domi- 
ciled in  another  institution.  Want  of  consideration  on  this  point  will 
result  in  constant  misconception. 

Let  us  suppose,  for  argument's  sake,  that  the  amount  of  the  bills  of 
a  certain  promissor  in  his  own  office  is  $2,000.  That  figure  will  be  before 
him  whenever  a  reference  is  made  lo  the  bills  of  the  party.  He  will 
recall  the  information  he  has  on  record  respecting  him,  and  applying 
that  information  lo  this  specific  amount  will  exercise  his  judgment  ac- 
cordingly. 

But  if  the  merchant  who  oiTers  the  paper  has  another  discount 
account,  he  will,  in  all  probability,  offer  the  paper  of  the  same  customer 
in  that  quarter  also. 

Thns  the  very  basis  of  a  banker's  judgment  will  te  a  misconception. 
For  he  is  thinking  of  a  credit  of  $2,000;  when-as,  he  ought  to  be  thinking 
of  some  larger  sum,  viz.,  $3,000,  or  $3,000.  or  even  more;  and  may  awake 
to  the  true  condition  of  things  only  when  he  is  prevented  from  applying 
a  remedy.  For  his  own  customer,  i.  e..  the  wholesale  merchant,  may  fail, 
and  his  failure  be  due  lo  the  fact  of  his  having  given  too  much  credit. 
Then,  for  the  first  lime,  the  banker  realises  the  true  position.  The 
retailer  who  was  considered  perfectly  good  for  $2,000  is  found  qnitc 
unable  to  pay  $9,000  or  $10,000,  and  the  merchant  who  has  been  con- 


THE    DISCOUNTING    OF    TRADE    BILLS.  149 

™h  «d  ,n,p™de„t  in  .,„rti„g  him  doubk  or  Irebl.  th.  .n.ouot. 

The  ,u«tion  therefore  of  what  i.  called  ta  banking  phraae  "a  divided 

«r."  "*■"       """  import.""  in  conneellon  with  loan,  of 

In  a  bonking  .yrtc™  like  that  of  Canada,  where  braaohe.  are  ..tab- 
..hed  at  n,.n.v  point,  a  banker  ha.  al«,  to  eon.ider  whether  hi.  en.- 
dZont  """"«  ™  ''"""■■••  '"  """-o  «"«  one  centre,  and  keeping. 
di.co«nt  ««,„nt  at  .on,e  other  branch  of  hi.  own,  or  .ome  other  bank 

hetd  offier°r.'J\'  Ti"  ^'"  ""^  «>n.ideration  of  th„.e  who  from  the 
head  oiBee  of  the  bank  have  ,uper,i.ion  over  what  i.  g„i„g  „„  .t  ih° 
branche.  But  in  general  it  „.y  be  .aid  that  it  i.  not  deafrabk  fo  . 
he'lT  ;  %■"■"""'  •^""'  "  "°«  «■■•"  "-  br«.ch    though 

..rable  a.  a  role,  for  ,;  cu.ton.er  who  earrie.  on  bu.ine..  in  two  place,  to 
have  b.II.  d,«ounted  ior  him  drawn  upon  hi.  own  firm  in  another  «n.^ 

b  anch  "."■■  """"""J  '"  "■"'  ■■■■"■  '"'  '"«'  "■'"■"  •«  "t^l  •" 

for  the       ,  TTk,'".  °"'"  """"  ■"■'  "  ■PP^""  »•  ■""""l  "t  time. 

But  con..derat,„n  will  .how  that  there  i.  an  cential  dilTerence  U*^ 
h.  two  c..e..     In  the  one  there  i.  a.  actual  tran.fer  of  prorrty  J^ 

Lft!,  J  \n%?°°^'/r,°"'''  "•"""«■'  f""-  one  warehou.e  to 
another  the  obligation  of  the  keeper,  of  the  «cond  wareh„u«  adding  no 

«:'^h.r  i^r  i  ^'  ""•  ■"■'  ^'^^  "■"•  ™"^'»  *'- '» - 1^ 

.Zt.  of  I  ""  S  '  '""  "  '  ""■  ""^  '"»  ""ehouM..  in  differ«.t 
.treet.  of  a  c.ty,  and  one  wareho^ie  drew  bill,  upon  the  other. 

hi.  fjrL^T.  ""'•«"••.«''  I-y  "  '"Wl'gent  banker  not  .m„ng.t 
hi.  to«Ie  b,ll.,  but  a.  Jo,„  „«»„.,  ,„,„■(,.  Such  loan,  mar  be  g,Sd 
o|^otherw..e  acccrding  to  circ„m.tance.,  but  the  document,  are^not  ^ 

i.J'^T':  !^^^°"°^  ""  *■'"  "  •*  «"■"'"'-  "  '»"i"g  the  real  or 
duly  .„  hori.ed  ..gnature  of  the  partie.  to  it,  and  that  it  be  pr"l?; 
drawn  m  accordance  with  law,  the  b«.ker,  bearing  in  mind  thcTtJ 
amount  that  he  i.  aaked  ,0  di^ount  of  the  „me  periLn.  wil  have  be^^ 
h,m  the  fundamental  que.Uon,  whether  the  maker  of  the  bill.  c«,  k 
reUed  on  to  pay  them.  To  the  .ettlemenl  of  thi.  quealion  a  b«.ker  wiU 
brn.g  .11  the  information  at  hi.  command  from  out.ide  «,urce..  aidrf^ 

that  of  other  perwn..  It  not  infrequently  happen,  that  .  purcha«r  of 
comm^ife.  may  deal  with  .everal  hou.e.  in  the  .am.  trade,  aU  of  whom 
keep  accou.^.  in  the  one  bank,  either  at  the  head  oiHce  or  at  «,me  of  the 
branche..     The  banker  ha.  tbu.  a  .omewhat  wide  range  of  experience 


11 


BANKING    AND    COMMERCE. 


and  information  at  hit  command.  A  large  Scotch  bank  may  have  a 
mercantile  account  in  Glasgow,  and  discount  thereat  the  bills  of  trader* 
in  different  towns  of  the  interior.  But  some  of  these  traders  may  buy 
goods  also  in  London,  and  their  bills  may  be  offered  at  the  London  office 
of  the  same  bank.  Thus,  from  two  sources  the  bank  can  form  a  judgment 
as  to  the  quality  of  the  bills.  The  tame  principle  will  apply  to  cities  in 
Canada,  for  it  is  common  there  also  for  retail  traders  to  make  porchaset 
in  more  than  one  centre  of  wholetale  trade.  Thus,  their  billt  may  come 
under  the  review  of  a  banker  in  any  one  of  the  ccntret  where  the  head 
offices  of  banks  are  situated. 

The  same  custom  of  buying  from  wholesale  houses  in  other  cities 
doubtless  prevails  in  the  United  States.  But  American  bankers  have  not 
the  tame  facilitiet  for  discovery  that  the  bankers  of  Canada  have. 

Almost  every  large  wholesale  firm  hat  a  circle  of  cuttomeri  who,  for 
various  reanona,  deal  almost  exclusively  with  it.  The  bills  given  by  this 
data  of  customers  will  swell  up  to  a  much  larger  total  than  those  of  the 
average  trader,  and  the  attention  of  the  banker  will  very  naturally  be 
given  to  llirm  with  corresponding  care.  For  experience  shows  that  the 
line  of  credit  given  by  a  wholesale  merchant  to  a  retailer  of  this  rlatt  is 
very  apt  to  be  abuied. 

The  retailer  gradually  acquires  the  habit  not  only  of  buying  his  goods 
from  the  merchant.,  but  of  leaning  upon  him  financially,  looking  to  him 
for  help  in  emergencies,  expecting  help  when  he  has  not  the  wherewithal 
to  meet  his  bills;  in  fact,  practically  making  the  merchant  his  banker. 
In  such  cases  it  is  not  uncommon  for  a  merchant  to  hold  security,  which 
tecuritr  may,  or  may  not,  be  strictly  applicable  to  the  paper  held  by  the 
bank.  Such  security  may  be  for  an  open  account,  or  a  balance  due  over 
and  above  the  notes  given  for  goods,  in  which  case  the  banker  would 
derive  no  benefit  from  it  in  case  of  failure. 

When  the  amount  of  a  retail  customer's  paper  swells  up  beyond  the 
average,  it  will  always  be  wise  for  a  banker  to  ascertain  what  it  hit 
total  indebtedness  to  the  merchant ;  and,  supposing  he  has  given  security, 
what  is  the  nature  of  it,  and  the  terms  on  which  it  has  been  given.  And 
if  an  account  begins  to  show  unfavorable  features,  it  may  be  desirable 
to  have  tl  :  security  transferred. 

It  ■>  in  connection  with  customers'  paper  of  this  kind  that  the  danger 
of  a  divided  account  becomes  manifest.  For,  in  that  case,  it  is  certain 
that  the  bills  of  the  customers  who  owe  the  largest  amounts  will  be 
divided  between  two  or  more  banks.  The  result  it  that  an  excessive 
credit  is  apt  to  be  concealed  or  overlooked.  The  banker,  having  before 
him  a  statement  of  the  account  of  a  certain  customer,  may  not  notice 
what  he  would  consider  an  excessive  amount  under  one  name.  And 
though  he  may  have  been  informed  that  there  it  another  bank  account, 
he  does  not  always  recollect  at 'the  moment  that  the  .'.moimt  he  has  before 
him  is  not  the  true  total.     But  if  the  whole  of  the  paper  of  the  retailer 


THE    niSCOUXTI.NO   OF    TRADE    BILLS.  iji 

were  in  hit  own  hand,  he  would  at  once  be  struck  with  the  amouni  <u 
excCTwve,  and  talie  me-isurcj  accordingly.  He  would  almoit  certainly 
have  refn»ed  to  discount  lo  large  an  amount  of  paper  at  all,  and  thiu 
have  rendered  hii  customer  essential  service.  Or  if  inadvertently  so 
Urge  an  amount  Imd  been  allowed  to  creep  in,  he  would  require  reduction 
or  security,  putting  the  customer  on  his  guard  by  such  action,  and 
Indicating  to  him  that  the  account  of  his  debtor  was  becoming  dangeroiu 
When  a  wholesale  Arm  has  failed,  the  failure  has  often  been  brought 
about  by  excessive  credit  given  to  a  small  number  of  customers  whose 
paper  has  been  distributed  between  two  or  thr-  e  banks. 

Remarkable  instances  of  this  kind  have  been  known  in  the  experience 
of  Canadian  banks.  Tlie  failure  of  a  wholesale  firm  has  revealed  more 
than  once  an  amount  of  credit  as  having  been  given  to  certain  retailers 
that  was  simply  appalling,  and  which  could  never  have  happened  if 
all  the  bills  had  been  domiciled  with  one  banker.  The  same  danger  arises 
in  the  United  Stales  when  bills  are  sold  to  bill  brokers  in  New  York, 
as  well  as  discounted  at  a  merchant's  own  bank. 

The  discounting,  thin,  of  customers'  bills  by  a  banker  is  not  so  simple 
a  matter  as  might  be  supposed. 

The  note,  say,  of  .lohn  Thompson  to  McGregor  &  Co.  for  $J00 
may  seem  lo  be  a  good  bill,  and  the  risk  of  discounting  it  a  mere  nothing. 
But  if  the  banker  has  already  discounted  Thompson's  paper  to  the  same 
firm  for  .$5,000,  the  question  whether  he  shall  take  $J00  more  is  a 
different  affair.  If  the  banker  has  also  in  his  bill-case,  Thompson's 
paper  to  Williamson  &  Co.,  the  alTair  is  more  complicated  stiU.  If  in 
addition,  McGregor  &  Co.  keep  an  account  with  another  bank,  and  have 
under  discount  there  more  of  Thompson's  paper,  amount  not  known,  the 
question  of  the  $500  note  has  an  aspect  that  a  casual  glance  does  not 
begin  to  reveal.  Still  further,  if  in  addition  to  all  the  notes,  the  banker 
is  aware  that  McGregor  &  Co.,  and  probably  Williamson  &  Co.  as  well, 
have  an  open  acconnl  against  Thompson,  the  considerations  with  regard 
to  that  one  note  may  well  be  of  such  a  character  as  to  make  him  take  a 
long  time  to  deliberate  about  it. 

Yet  this  is  a  fair  specimen  of  the  manner  in  which  much  of  the 
discounting  of  customers'  pajjer  has  to  be  conducted.  In  every  case,  the 
consideration  has  to  be  of  the  Mai  amonnt  of  the  tame  name  in  the 
banker's  possession,  then  of  the  position  of  the  maker,  then  that  of  the 
merchant  himself,  then  of  the  total  amount  of  the  latter's  whole  discount 
line;  and  also,  if  he  is  known  to  have  more  than  one  account,  the  amount 
and  character  of  the  liability  under  that. 

It  might  be  thought  that  if  such  complicated  considerations  present 
themselves  with  regard  to  every  note  offered,  the  time  necessary  to  com- 
prehend them  would  prevent  ^ny  discounting  behig  done  at  all.  But  a 
banker  who  understands  his  business  and  gives  close  attention  to  It, 
acquires  a  sort  of  instinct,  which,  aided  by  accnrate  information  periodi- 


i  J 


in 


BANKING  AMD  COMMEBCE. 


ralJj  pluni  before  him,  entblu  him  to  deal  with  inch  matten  promptlj 
and  without  wailing  cither  the  cuatomer'i  time  or  hii  own. 

But  auch  a  habit  of  cloM  attention  la  abaolntelj  neeeaiarjr  to  eOeienej, 
and  not  IcM  la  the  habit  of  eonatantlj  eoninlting  Ua  reeordi  and  of 
arranging  the  iummariea  of  Ua  cnatomen'  diaconnta  lo  that  he  nay  ha 
able  at  a  glance  to  iee  how  each  of  them  itandi,  and  how  mneh  paper  of 
each  reuilcr  ia  generally  olTered  by  mercantile  cnatomen. 

The  foregoing  obaenratlona  largely  refer  to  the  noica  generally 
offered  by  importing  merchant!.  Bat  when  aoch  merchanta  have  eatab- 
liahed  a  character  for  pmdence  and  attention  to  bnaineai,  and  are  knows 
to  have  inlBclent  eapiUl,  it  !•  common  for  the  banker  to  "pau"  ancb 
paper  ■■  ia  offered  without  apecial  icrutlny  of  the  namea  al  the  ttmt. 
Indeed,  it  may  fairly  be  said  that  a  merchant  haa  never  eitabliahed  him- 
■elf  on  a  proper  footing  with  hia  banker  until  the  billa  he  offera  can  be 
paiied  at  once.  Thia,  however,  can  only  be  the  caie  where  a  bank  haa 
the  whole  account. 

But  for  all  that,  the  paper  will  come  under  periodical  review,  and  • 
judgment  will  be  pancd  upon  the  namei  which  compote  it,  in  thote  aum- 
mariaed  itatenicnta  which  are  pretented  lo  the  banker  by  hia  officera, 
which  itatementa  arc  almoat  of  ai  much  importance  to  him  ai  the  compaaa 
ia  to  the  captain  of  a  ahip. 

There  are  other  claaaei  of  trade  billa  than  theie,  aueh,  namely,  a* 
ariie  in  connection  with  manufacturing  Induitriea  and  require  to  be 
judged  by  different  ruin.  The  relation  between  a  manufacturer  and 
the  purchaaer  of  hia  gooda  ia  often  of  an  entirely  different  character 
from  that  of  a  wholeaale  merchant  and  the  retailer. 

In  tranaactiona  between  a  wholeaale  merchant  and  a  retailer  the 
former  ia  generally  the  mon  important  peraon.  But  when  the  manufac- 
turer lella  to  the  wholeaale  merchant,  it  ia  not  infrequently  the  caae  that 
the  purchaaer  haa  a  far  larger  capital  than  the  aeller. 

Included  in  the  category  of  manufacturera  ia  the  large  claaa  of  owners 
or  operatora  of  fouring  milla  and  aaw  milla;  Tic  ugh,  aa  haa  been  ob- 
■erved,  they  are  lomeUmea  not  thought  of  aa  manufacturera  at  all. 

Many  of  theie  milli  are  amall  concemi,  yet  they  occupy  a  moat  uaefnl 
place  in  the  induitrial  development  of  the  country.  Such  aa  tkeae  will 
have  aa  purchaaera  the  large  merchanta  of  central  citiea,  whoae  reputed 
wealth  and  atanding  gi."  them  a  poaition  much  beyond  the  peraona  from 
whom  they  buy. 

The  billa  of  houaea  of  thia  kind  are  generally  eateemed  by  bankera 
as  of  a  choice  character;  for  they  are,  as  a  rule,  short,  and  as  a  rule, 
paid  at  maturity.  If  a  wholesale  merchant  were  to  desire  a  renewal  of 
any  of  his  obligations,  his  credit  would  be  impaired  at  once. 

The  bills  drawn  by  a  saw  miller  in  Canada  upon  lumber  houses  in  the 
United  States  are  often  of  a  high  quality,  yet  a  banker  will  need  to  keep 


THK   DISCOUNTING  OF   TBADE   BILLS.  19« 

UniKlf  adTlHd  from  time  to  timf,  ond  nprcially  from  muob  to  mtm, 
of  the  operation!  of  incli  hotuec. 

The  billi  of  woolen  and  eotton  mlUe  upon  dry  goodi  ud  elathing 
homee  are  of  the  tame  claH  ai  the  laat.  They,  a<  a  mle,  ar<  promptly 
paid,  for  the  reanin  Jul  auigned.  In  fact,  their  regular  payment  it 
sometimci  the  reaaon  why  a  banker  li  deceived  by  Ibem.  The  wholesale 
merchant  moit  pay  hii  obligationt  promptly  or  atop  payment  altogether. 
Thui,  when  itieh  a  houie  doei  itop  payment,  it  ii  nanally  without  any 
premonitory  lymptomi,  such  at  the  ailiing  for  renewal!,  or  letUng  an 
acceptance  occaaionally  be  dlihonored. 

But!    DrAWX    AoAINIT    CaHUONMEHT!    OF    OOOO!. 

There  i!,  however,  a  cla.i  of  bill.,  which,  though  having  the  appear- 
ance of  eurtomer.'  paper,  and  being  generally  claued  aa  auch,  doei  in 
reality  talie  iti  riie  from  different  circumitancei  altogether. 

The  ordinary  trade  bill  reprrienta  a  purchaie  of  goodi.  But  in  lome 
caiei,  as  has  been  shown  in  an  earlier  chapter,  a  selling  agent  ia  em- 
ployed in  large  cities  who  receives  goods  as  a  purchaser  would  do,  and 
accepts  bills  against  them  in  favor  of  his  manufacturing  correspondent. 
These  bills  naturally  run  up  to  large  amounts;  in  fact,  to  the  whole  sum 
which  the  biUs  of  a  number  of  purchasers  would  have  done  had  sales  been 
made  direct  to  them.  The  arrangement  saves  the  manufacturer  much 
labor,  for  instead  of  drawing  on  a  multitude  of  traders,  he  only  draws 
upon  a  single  agency  house. 

But  it  it  obvious  that  the  risk  is  heavy,  for  in  case  of  misfortune  to 
the  agent,  the  manufacturer  becomes  a  creditor  of  a  bankrupt  estate  to 
such  an  amoiuit  that  he  may  be  landed  in  bankruptcy  himself.  These 
bills,  however,  are  of  an  exceptional  clatt,  for  the  property  in  the  goods 
against  which  they  are  drawn  haa  not  passed  to  the  drawee. 

The  bills  drawn  by  a  flour  mUler  or  pork  packer  upon  a  consignee 
against  goods  sent  for  tale  are  a  variety  of  the  same  class.  If  drawn 
against  merchandise,  a  banker  would  look  on  them  with  considerable 
favor,  objectionable  as  the  practice  of  consigning  is,  so  far  aa  the  owner 
is  concerned.  But  it  is  not  uncommon  for  '  relations  to  be  esUblished 
between  consignor  and  consignee  [hat  the  .  ..ter  wUl  lometimes  accept 
bills  before  goods  are  shipped,  and  for  this,  in  time,  to  degenerate  into  a 
practice  of  drawing  without  reference  to  merchandise  at  aU.  When 
matters  have  arrived  at  this  shape,  it  may  be  assumed  that  both  parties 
are  pretty  far  on  the  way  to  insolvency.  Yet  the  consignor's  banker  may 
not  find  it  out  until  both  parties  fail,  and  the  true  character  of  the  paper 
is  revealed. 

The  only  safe  mode  of  dealing  with  bills  drawn  against  staples  like 
«our,  grain,  pork,  or  similar  articles  is  to  require  a  bill  of  lading  to  be 
attached  to  them.  This,  in  fact,  has  now  generally  come  to  be  the  case; 
the  only  quetUon  being  whether  the  goods  shall  be  to  "order"  generally. 


11-  ill 

tii 


194 


BAXKIXO   AND   COMMERCE. 


or  to  the  bank's  order,  or  to  the  order  of  the  purchaier  or  coulfnec. 
In  the  Ifttter  caw  the  bill  of  lading  gives  no  practical  securltjr,  except 
to  Insure  that  the  bill  is  drawn  against  merchandise.  In  the  two  former, 
the  purchaser  cnnnot  get  the  goods  without  the  bill  of  lading,  and  It  ii 
for  the  banker  to  say  whether  he  will  give  it  up  on  acceptance  or  retain 
It  until  payment.  The  last  is  the  usital  course.  But  the  drawee  maj 
refuse  to  accept,  in  which  case  the  bank  has  the  goods  os  security.  What 
be  shall  do  with  them  is  generally  a  matter  of  arrangement  with  the 
drawer. 

ACCOMMODATIOX    BltU. 

There  is,  however,  a  class  of  bills  which  have  generally  been  known 
by  the  appellation  of  "accommodation,"  but  which,  as  will  be  shown, 
ought  properly  to  be  designated  by  a  severer  epithet. 

For  such  bills,  as  a  rule,  are  the  expression  of  a  written  falsehood. 
It  is  not  essential  to  the  legality  of  a  bill  to  append  the  words  for  valu* 
received,  for  which  reason  the  words  are  not  found  In  every  bill  that  is 
drawn.  But  it  was  once  universal,  and  it  is  almost  universal  now.  The 
practice  is  founded  on  the  reason  of  things;  viz.,  that  the  promise  to  pay, 
or  the  acceptance  of  an  order  to  pay,  should  be  a  warrant  to  any  man  who 
Is  asked  to  give  cash  for  the  document,  that  a  genuine  transaction  Is  at 
the  bottom  o/  it  That  the  maker  owes  the  money,  that  he  has  received 
value,  raises  a  strong  presumption  that  he  will  pay  the  bill.  This  is  the 
natural  order  of  things,  and  It  is  this  that  gives  a  value  to  the  bill  it 
would  not  otherwise  possess.  For  unless  the  maker  becomes  bankrupt, 
It  is  certain  he  will  endeavor  to  pay  the  bill.  But  if  he  does  not  owe  the 
money,  he  may  do  all  that  Is  possible  to  avoid  payment.  Thus  the  words 
"for  value  received,"  though  not  essential  to  the  legality  of  the  bill,  are 
important  as  bearing  on  its  genuinene$». 

It  consequently  follows  that  these  words,  If  used, on  a  bill  which  Is 
not  founded  on  a  debt  owing  by  the  party  that  made  or  accepted  It,  are 
a  written  falsehood.  The  document  therefore  is  a  fraud.  Even  If  the 
words  are  not  there,  when  the  bill  has  the  form  and  outward  character 
of  a  bill  representing  a  business  transaction,  when  there  is  no  such  basis 
for  it,  the  bill,  if  passed  at  all,  will  be  passed  on  false  pretences. 

In  banking  practice  there  are  found  to  be  various  descriptions  of 
notes  of  this  kind,  which  differ  considerably  from  one  another. 

A  merchant,  for  example,  when  sales  are  slow,  and  bills  are  scarce, 
and  having  payments  impending  which  he  must  meet  or  lose  credit,  will 
sometimes  ask  one  of  his  customers  to  make  a  note  or  accept  a  bill  for 
a  larger  amount  than  he  owes.  In  this  case  the  merchant  will  probably 
promise  to  send  goods  at  a  future  day  to  cover  the  extra  amount.  The 
bill  will,  in  such  a  case,  be  partly  genuine  and  partly  fraudulent.  But 
the  words  for  value  received,  should  they  be  written  on  the  bill,  will  be 
wholly  false. 

Such  bills  as  these  are  perhaps  more  dangerous  than  those  which 


THE    niSCOUXTIXG    OF    TBADE    Bll.Ii*. 


have  no  buiinm  foundation  at  all.  It  ii  almost  im|ioulblc  for  a 
banker  to  detect  the  fraudulent  clement,  leeing  that  the  btU  ii  made  bj  a 
trader  known  to  have  dealings  with  the  house.  It  would  be  difficult  for 
a  merchant  to  obtain  such  a  bill  from  a  man  who  owed  him  nothing  at 
all;  and  If  he  did,  a  banker  would  more  eaailjr  find  It  out.  If  such  a 
practice  therefore  Is  entered  nn.  It  Is  generally  with  a  customer  who  has 
tegular  dealings  with  the  hoiiiie,  and  is  in  the  constant  habit  of  giving 
them  bills  in  settlement.  The  practice,  however,  Is  a  very  dangerous  one 
for  the  merchant  hlmst-lf.  The  single  instance  affords  so  ready  a  mode 
of  obtaining  money  that  there  is  a  constant  temptation  to  continue  it. 
Like  other  evil  habits,  this  is  apt  to  grow  by  Indulgence,  It  may  therefore 
come  to  pass  that  there  Is  a  constant  (but  fluctuating)  element  of  fraud 
in  the  whole  line  of  th'  merchant's  discount.  If  indeed  the  merchant 
informed  his  banker  of  the  real  state  of  the  case;  If  he  advised  him, 
let  us  say,  that  of  the  bills  he  offered  for  discount  a  certain  amount, 
twenty  per  cent,  thirty  per  cent.,  or  otherwise,  did  not  represent  business 
transactions,  he  would  be  relle\-ed  from  the  charge  of  fraud.  But  we  can 
scarcely  conccivr  of  the  merchant  having  the  coolness  to  do  it;  and  if  he 
did,  of  the  banker  being  simple  enough  to  go  on  discounting  the  bills. 
The  banker's  proper  reply  would  be  this:  if  you  have  need  of  more 
money  than  could  be  provided  by  genuine  bills,  let  me  know  the  amount 
you  want  and  whether  you  can  give  me  security  for  it;  and  If  security, 
leAo*  security;  or  whether  you  want  me  to  make  a  temporary  advance 
without  security  at  all.  We  should  then  understand  one  another,  and  all 
would  l>e  fair  on  both  sides.  But  for  me  to  go  on  discounting  so-called 
commercial  bills  that  have  a  taint  of  fraud  in  them  would  be  to  become  a 
party  to  the  fraud  myself. 

There  are,  however,  bills  of  this  character  which  have  the  element 
of  fraud  outright.  Bills  have  been  offered  to  banks  and  have  been  dis- 
counted to  ronsiderable  amounts  which  rested  on  no  business  transac- 
tion whatever.  Commercial  firms  in  great  business  centers  having  high 
credit  and  standing  have  been  found  capable  of  concocting  and  carrying 
forward  for  years  srhemes  of  deliberate  deception  with  their  bankers, 
like  the  following.  They  would  arrange  with  a  number  of  small  traders 
in  various  parts  of  the  country  to  accept  bills  drawn  upon  them,  although 
no  business  transactions  whatever  had  passed  between  them.  A  con- 
sideration was  given  in  such  eases;  and  the  bills  were  always  careful  . 
seen  to  at  maturity  by  the  negotiating  house.  It  was  by  a  perfect  net- 
work of  arrangements  of  this  kind  that  the  great  wholesale  firm  of 
Macdonald  &  Co.,  of  Glasgow,  managed  to  deceive  the  Western  Bank 
of  Scotland,  and  to  keep  themselves  afloat  long  after  they  were  insol- 
vent. The  amount  involved  in  the  deception  was  enormous  (some  ^408,> 
000),  and  when  the  bubble  burst,  as  it  could  not  fail  to  do,  it  had  much 
to  do  with  the  stoppage  and  ruin  of  the  bank  itself. 

It  may  be  said  without  a  carping  style  of  criticism  that  the  ofScert 


ri 


IM 


BANKING   AND   COMUERCE. 


»t  Um  bank  might  inrrljr  ban  diM«Tcl<d  what  wu  (oiiig  on  kfsic  tW 
■Hnation  became  dangtraus. 

Anotber  Inatann  of  the  Mmc  kind  wai  In  the  caM  of  a  (reat  booM 
in  the  Leathrr  trade,  who  with  hendqnartcrt  in  London,  had  eatabllfbed 
a  network  of  branchet  and  corrcipondenti  by  meana  of  which  as 
enoraMoa  amouit  of  billa  waa  kept  afcat  far  beyond  the  aetnal  binlBiM 
tranaactcd.  When  the  Ann  failed  it  waa  found  that  no  leia  than  twenty 
nine  of  thcie  "drawing  poata"  bad  been  made  oie  of,  and  that  the 
frandolcnt  billa  amounted  to  no  leu  than  /680,OOOI  In  thia  caae  a  cer- 
tain amount  of  real  buaineia  waa  done  with  Mme  of  the  correapondlng 
bonaet,  glWng  color  to  the  billi  olTcred  for  diacount.  It  ia  eridcnt,  how- 
erer,  that  in  thia  caae,  a  vigilant  ityle  of  doing  bualneaa  would  bare  dia- 
cerered  the  fraudilent  character  of  the  operationa  carried  on.  So  far, 
howcTcr,  waa  thia  from  being  the  caae  that  the  London  bank  where  the 
account  waa  kept  carried  on  the  diacounting  operationa  of  the  firm  In 
iueh  a  recklcaa  manner  aa  to  raiie  the  Imputation  that  the  manager  waa 
a  fmrtkift  criaiiau  in  the  alTalr.  He  waa  on  aoch  Icrma  of  Inthnncj 
with  the  partncra  of  the  houe  that  a  aort  of  ihng-lM  waa  current  be- 
tween them,  according  to  which  a  amall  batch  of  billa  waa  called  a  Urn- 
tpoon,  a  larger  batch  a  deuerttpoon,  and  a  batch  of  conalderable  amount 
a  iMttfoan.  In  the  eiamination  before  the  bankruptcy  court,  it  waa 
rcTcaled  that  the  manager  of  the  bank  had  been  In  the  habit  of  aend- 
Ing  orer  to  the  firm,  asking  whether  they  had  any  billa  to  diacount,  thna 
grosaly  violating  all  natural  order,  and  letters  from  him  were  produced 
In  court  such  aa  the  following: 

Hy  dear  M.: 
We  are  floah  thia  morning. 


Send  me  over  a  tMetpaon, 


Yours, 


A.  B.,  Afanager. 


If  ever  in  the  dealings  of  banker  and  cnatomer  there  was  a  downright 
taKcBtlve  to  extravagance  and  fraud  It  waa  offered  In  thia  Inatance. 

It  cannot  be  wondered  that  the  bank  Itaelf  had  only  a  short  career. 
It  waa  regularly  organised,  and  had  the  ambitiooa  title  of  The  Bank  of 
London.  But  it  ran  only  a  short  career  and  was  wound  up  in  disgrace, 
with  a  heavy  loss  to  the  stockholders. 


1 


CHAPTER  XXI. 


rOUIOM  BILLS 
Bilk  With  Dacviiixn  —  Othu  Cunt,  or  Bii.!  ■  ~  Diawixs  or 

FllCDDUMT   BiLLi— BllU   Du<TN     AoAliH    1  lint   SiriFHlKTi— 

Stiiuiio   Bimi  or  Bahki  ix     f.>  »n,  t   Hoi jm    Yuit   Bauiic 

Cum   RiClLLID. 

'  I  ■'HE  bllU  dr«wn  upon  Greal  I'  i,'*.:  ft  otli.  r  rji."trit5  agi>iritt  goodf 
•I-  ihipprd  Ihcrr  are  In  •  djT.r.nt  cIms.  •<>  :  n  na  ixKiLkerping  il 
concerned,  from  the  forenunj,  bcii'n  ("  .  an  ijajaW.  in  itcrllng  oi 
other  foreign  currency,  and  neccuiliitinit  .1  ilitiVrcul  sljl.-  of  treatment 
in  a  baniccr'i  boolu.  But  they  arc  csieiillollv  t\r  fni.u-  in  effect  ai  billi 
drawn  upon  some  commercial  centre  in  tli.'  lou.ilr}.  Tli  ;r  repreient, 
or  ahould  reprcacnl,  either  purchaiei  of  giHj.is  or  ytoLdj  srnt'on  conalgn- 
ment  They  are  tubjcet  to  the  fame  ritka  of  non-acceptance  or  non-pay- 
ment, laving  only  the  fact  that  there  are  atUched  to  a  large  proportion 
of  commercial  biUa  of  nchange  what  are  called  Jocumenit,  via.,  bllla  of 
lading  and  policiei  of  iniurance,  which  are  traniferrrd  to  the  bank,  and 
which  are  held  aa  aeeurity  until  the  bill  it  paid. 

It  wai  at  one  time  a  aort  of  luperatition  amongat  bank  official!  that  a 
bill  drawn  In  aterling,  payable  in  pounds,  shillings,  and  pence,  was,  by 
that  fact  a  safer  document  than  a  bill  drawn  in  dollars  and  cents.  There 
waa  some  ground  for  this  opinion  in  the  fact  that  it  was  not  so  easy  for 
accommodation  paper  to  be  manufactured  payable  in  sterling  money  as  it 
waa  when  the  note  was  made  by  persons  in  the  same  town.  At  one  time, 
when  the  Canadian  law  imposed  heavy  penalties  on  the  dishonor  and 
return  of  a  sterling  bill,  it  would  have  been  a  serious  business  for  any 
one  to  concoct  aeoommodation  paper  payable  in  London.  These  penalties 
have  been  largely  done  away  with.  Yet  it  Is  still  much  more  difficult  to 
float  accommodation  foreign  bills  than  inland.  It  has.  however,  been 
done. 

There  are  several  distinct  classes  of  bills  drawn  payable  In  sterling 
cr  other  foreign  money,  via.,  commercial  bills,  banker's  bills,  bills  drawn 
by  finance  houses  or  other  corporations  upon  their  agents,  and  bills  drawn 
by  governments.  It  is  of  the  first  of  these  that  the  present  chapter  will 
treat. 

Commercial  bills,  properly  so-called,  payable  in  sterling  or  other 
foreign  money,  are  drawn  by  the  seller  or  consignor  of  exported  goods  on 
the  purchaser  or  consignee  on  the  other  aide  of  the  Atlantic.  Of  theaa 
there  are  several  varieties,  and  the  risk  to  the  banker  dealing  with  them 
▼aries  greatly. 


'^'  BANKING    AND    COMMERCE. 

Bills  with  Documents. 
It  hai  beronir  cu.tomnrjr  of  late  ye«ri  in  leveral  of  the  larger  branchei 
of  the  export  trade  for  the  exporter  to  secure  himself  from  loss  by  attach- 
ing bills  of  lading  and  policies  of  insurance  to  his  bills.  These  documenU 
are  so  drawn  that  the  goods  shipped  cannot  pass  into  the  possession  of 
the  purchaser  until  he  has  paid  the  bill  (if  he  has  accepted  it).  If  he 
fails  to  pay,  or  refuses  to  accept  it,  the  banker  who  has  bought  the  bill, 
in  addition  to  his  claim  against  the  drawer,  acquires  property  in  the 
goods,  and  can  sell  them  as  the  law  may  allow,  placing  the  proceeds  to 
account  of  the  bill.    The  drawer  is  then  liable  for  the  de«cicncy,  if  any. 

It  might  be  supposed  that  this  proceeding  would  make  a  banker  so 
safe  that  the  purchasing  of  such  bills  would  become  almost  a  mechanical 
operation,  requiring  neither  knowledge  nor  good  judgment.  But  experi- 
ence dissipates  this  delusion.  Every  banker  who  has  had  to  do  with  bills 
of  this  class  is  aware  that  the  same  considerations  arise  with  regard  to 
them  that  are  needful  with  inland  bills.  To  begin  with,  he  has  to  consider 
the  character  of  the  shipper,  both  as  to  honesty  and  capacity.  At  to 
honesty;  for  the  bills  of  lading  may  not  be  genuine.  Instances  have  been 
known  of  forged  bills  of  lading  being  attached  to  sterling  bills,  and  heavy 
losses  sulTered  by  the  bank  purchasing  them. 

But  supposing  the  bills  of  lading  to  be  genuine,  thev  mav  be  very 
insufficient  security  for  the  bill  to  which  they  are  attached.'  For  the 
shipper  may  have  only  an  imperfect  knowledge  o.  \'v  merchandise  he  is 
shipping,  and  sends  across  the  Atlantic  goods  which  no  prudent  merchant 
will  accept  against.  Or  the  shipper  may  be  of  that  sanguine  tempera- 
ment which  invariably  leads  him  to  think  his  goods  worth  more  than  they 
are,  in  which  case  his  bill  is  drawn  for  too  large  an  amount.  In  both 
these  cases  the  bill  is  liable  to  be  refused  acceptance,  and  the  banker 
may  find  Kimaelf  with  the  goods  upon  his  hands  which  the  English  mer- 
chant, on  the  spot,  considers  not  worth  as  much  as  the  bill.  Then  ensues 
one  of  the  most  unpleasant  of  all  a  Canadian  or  American  banker's  ex- 
periences, vii.,  the  bringing  to  sale,  in  a  distant  market,  of  goods  which 
are  stamped  as  undesirable  by  the  very  fact  of  their  being  in  the  hands 
not  of  a  merchant,  but  of  a  bank.  The  goods  must  be  warehoused  and 
msnred.  Charges  begin  to  accumulate.  A  broker  must  be  employed. 
The  goods  are  offered  for  sale,  but  naturally  purchasers  are  shy.  Offers 
are  made  which  are,  perhaps,  forty  per  cent,  less  than  the  amount  of  the 
bill.  If  the  offers  are  accepted,  a  loss  more  or  less  is  certain.  If  they 
are  not,  the  banker  takes  the  risk  of  the  market.  A  rise  will  bring  him 
out;  a  fall  will  increase  the  loss  unless  the  dra\7er  can  make  it  good. 
The  holding  of  goods  becomes  therefore  a  speculation;  meanwhile  one 
thing  is  certain— that  charges  are  increasing. 

But  the  banker  has  another  party  to  deal  with  in  these  eases,  via., 
the  shipper  of  the  goods,  who  it  Us  own  cnstomer. 


FOREIGN   BILLS.  ]jj 

nenta  were  attached.  --"""merBi  aa  it  no  docu- 

.»  end  both  rXpe-f  the'^Vrj^^H   " '""  *"  ""^'^ 
document,  attached  to  it  at  .U    ri.     tk\      /       T  "'""''  """  '"^ 

Other  Cunti  of  Bilm. 

b J;rThZetwtrheTr:.?„r  '"*™  -^  '""■■ '-  »"■" 

mert.,  must  be  ca,hrf  on  II,-.  J-.  /  .  .'  °"«"'"'P«nl«l  by  doeu- 
to  take  the  ri.k  of  ».  M„;.''<:;!pT;d''      '"  °"  "'""'  ""  "«  '"^"  "" 

— :.::ei'';:;r.trai,:':rr:Lr'  -^  ^"" "- — 
.» JJ:  rLCfrran";  :ircaT';;r  r '-"."  "■""■  -' '-  «- 

on  a„.v  oth„  ™„  L  JylZZ  jZ  sLt'lT  ""  f  """"«  '"" 
a  .maJl  b„.i„„.  i„  .  ,„„ber  centre  in  r.„^  '  ^  "'  "''' '"  ""^'"8  '«' 
commit  a  f„„d,  „„j  ,„  etorhta  elf  r.h  ""'  ''  ""  ''"^  »» 


l50 


BANKING   AND    COMMERCE. 


course  of  baBinetf,  and  will  be  accepted  on  preientation.  The  banker 
knows  that  the  house  on  whom  the  bill  is  drawn  is  abundantly  good  for 
ten  thousand  pound«>  or  ten  times  as  much,  and  can  scarcely  help  being 
influenced  by  the  sight  of  such  a  powerful  name,  though  it  may  be  that 
the  drawer  has  no  more  right  to  use  It  than  be  would  have  to'draw  on  the 
Bank  of  England  for  a  million. 

The  banker  haa  therefore  to  consider,  when  a  sterling  bill  is  offered, 
unaccompanied  by  documents,  whether  his  customer  is  likely  to  have 
dealings  for  such  an  amount  with  the  English  house;  whether  he  has 
ever  known  of  transactions  between  thcsi,  whether  the  course  of  his  busi- 
ness lies  that  way;  and,  in  fact,  whether  he  ever  had  the  right  to  draw 
a  sterling  bill  upon  anybody.  By  such  reflection  and  queries  he  will  easily 
be  able  to  satisfy  himself  whether  the  transaction  is  genuine  and  the  bill 
likely  to  be  accepted.  But  such  things  have  been  known  as  for  a  banker, 
possibly  a  young  beginner  in  the  responsibilities  of  management,  being 
persuaded  to  give  cash  for  a  fraudulent  foreign  bill,  in  which  case  he 
will  have  a  rude  shock  of  awakening  on  learning  that  the  bill  has  not 
been  accepted,  and  never  will  be.*" 

The  example  in  the  accompanying  note  is  adduced  to  show  the  neces- 
sity of  only  buying  "free"  bills  when  written  authority  to  draw  is  shown, 
or  in  the  case  of  commercial  bills  from  houses  whose  relations  with  the 
drawee  are  such  that  no  bill  is  likely  to  be  refused  acceptance.  And 
•uch  houses  there  are,  firms  that  have  drawn  millions  of  pounds  sterling 
of  bills  in  the  course  of  their  business  of  which  not  one  has  ever  failed 
of  being  honored. 

The  Drawino  of  Fraudulent  Bills. 

Yet  the  history  of  Canadian  banking  has  furnished  singular  instances 
of  fraudulent  bills  being  negotiated  by  houses  of  apparently  good 
standing. 

Some  years  ago  a  house  in  the  timber  trade  in  a  certain  part  of 
Canaoj,  which  had  conducted  its  businrsj  soundly  for  a  long  course  of 
years  and  had  established  itself  in  good  credit,  became  embarrassed,  and 
to  keep  itself  afloat  set  on  foot  a  system  of  drawing  free  bills  from 
various  centres  where  it  professed  to  do  business.     The  house  opened 

4S  A  cane  Is  known  to  the  writer  wher.-  h  nf «i--nmtr  lo  Canada,  iiinving  in 
lh»  iMst  circles,  who  had  mad*  amin««mrntB  to  enter  Into  partnership  with  a 
manufacturinv  houss.  induced  a  banker  t<^  cash  a  sterttnc  btll  for  about  four 
thoiiund  pounds,  aHednc  that  this  amount  was  comlns  to  him  from  hU  father's 
estate,  and  that  the  le*al  flnn  on  whom  he  drew  had  authorised  the  bill.  But 
they  refused  to  accept  It,  alleatnff  that  the  estate  was  In  no  poalUon  at  the  Um« 
to  meet  sush  a  demand  upon  It  The  banker  Indlrnantly  demanded  payment 
from  the  party  who  had  sold  It.  but  he  was  entirely  unable  to  refund.  The 
procrpds  had   vone   Into   the  buslnoaa.   and  he  could   not  ret   them  out. 

This  was  not  a  caae  of  obtaining  m'>ney  under  false  pretences,  for  he  hoa* 
eully  believed  he  bad  the  rlcht  to  draw.  But  more  than  two  years  elapsed  ba- 
fore  the  estate  was  atde  to  pay  the  money,  end  during  the  whol*  of  this  time 
the  banker  had  to   return   this  protested  bill  Ir.   Ms  statements  t"  head  ndlce. 


FOREIGN    BILLS.  ,g, 

Mcr.  al  .ever»l  .dditional  point.  i„  Canada,  Montreal  being  one,  al« 
l^Tvo?.'        hr      ""'•     ^'■"'  ""'  ""  '"  ^""Pondence  wi  h  a" 

Both  ,„  Canada  and  England,  were  of  firma  of  weight  and  slandin.  and 

.  considerable  amount  of  aetual  bosine,,  was  done  """■>"■«.  ""1 

The  machinery  once  atarted,  and  credit  eatabli.hed,  the  leading  apirit 

^^<:t::^x^^^^t  ^d-r-r :: -sr  "tF 
z^'iT" '"" "' ;"'  -—  -^'edr^rLTr  tTc 

K  "^^:^::^r;ar""" """  --  "■  -- -- 

rtrnc'lr  of"""«!i'v°""^;''°"  °'  "'^'"°'  ''""""•  "■■  '•-<•  «  huge  .uper- 
to  another,  transferring  the  proceed,  of  a  bill  «,ld  in  Monlreafto  Ztli 

«x:^.'::J:'t?r„""ttr^;-t.- 

^d  on  the  other,  n,o.t  of  whon.  were  entirely  ignorant  of  the    eal  cb." 

Ihe  bubble  of  cour.e,  bnr.t  in  Ume.    Th.  le^iing  .chemcr  took  car. 
to  be  out  of  the  way  when  the  bilU  came  b«,k,  but  .„nd,y  hZ^  Z 

otate  of  which  the  aweta  were  undiKOTerable 

.cll^rTetm"  °f  "'°"  ""  """  '°  "^^  •""""'  ='«"'  '»  "-We  theiu  to 

i"g  "«me,  .uch  a.  Can»ron,  Bo«nquet,  McGregor  -»  Co,  the  very  n^. 

d„r,ng  wh  ch  drawing,  are  promptly  paid,  their  bUl.  become  .ufficienUy 
known  on  the  market  to  enable  them  to  offer  them  in  variou.  bank.. 

Probably,  a.  they  proceed,  they  may  adopt  a  cunning  method  of  .UB- 
porting  heir  credit  by  refn.ing  to  take  any  but  the  fighe-t  pril  f J^ 
.beir  b,II.,  and  withdrawing  them  from  the  offer,  thji  creaHng  ft. 
■mpreuion  that  they  have  abundant  mean,  at  command.     Thu.  ihe  bffll 


iii 
liliil 


t«l  BANKING    AND    COMMERCE. 

acquire  a  character  and  arc  readily  purehaicd,  the  regular  operation  of 
the  house  lending  color  to  their  genuineness. 

The  time  comei  at  length  for  a  great  coup.  Simultaneously  a  number 
of  bills  are  drawn,  offered  to  all  the  banks  who  trill  take  them,  and  sold. 
Then,  on  some  morning  later  on,  the  community  is  startled  to  6nd  the 
office  closed  and  the  partners  fled  the  country.  Some  banks  shortly  after 
have  numerous  br*^'  '■'   of  worthless  protested  bills  in  their  possession. 

This,  or  somew..ng  like  it,  has  actually  occurred  in  Canada,  and  it 
is  always  liable  to  occur  when  the  free  bills  of  a  commercial  house  can  be 
easily  negotiated  with  banks  M'ho  are  ready  to  buy  them  in  entire  ignor- 
ance of  the  total  amount  i.flnat.  It  is  a  good  rule,  in  such  cases,  for  a 
bank  to  determine  that  it  will  take  all  or  none;  and,  if  all,  then  for  un- 
doubted reasons;  the  only  exception  being  when  the  drawers  are  of 
known  'vealtli  and  whose  business  is  of  such  a  magnitude  as  to  justify 
the  domiciling  of  their  free  bills  with  various  banks. 

Releasino  Documents  on  Acceptance. 

When  the  question  of  giving  up  documents  on  acceptance  is  raised,  a 
banker  will  be  careful  to  have  the  permission  of  his  own  customer  on  this 
side  before  consenting  to  it.  And  this  permission  must  be  a  written  one, 
for  nothing  would  be  more  likely  to  create  difficulty  in  case  a  bill  wai 
dishonored  than  a  failure  to  establish  consent. 

To  give  up  documents  without  consent  would,  of  course,  release  the 
drawer  from  liability. 

In  some  cases  a  drawee  will  request  documents  to  be  given  up  in 
exchange  for  a  banker's  or  broker's  guarantee.  The  guarantee  of  a  bank, 
as  banks  are  now  in  Great  Britain,  is  about  as  good  security  aa  can  be 
conceived. 

But  of  brokers  there  are  numerous  varieties,  from  wealthy  Anns  of 
unlimited  credit,  to  the  smaller  class  who  are  hardly  good  for  a  thousand 
pounds.  In  the  case  of  these,  a  banker  on  this  side,  and  his  customer 
with  iiim,  are  generally  guided  by  the  judgment  of  their  banking  cor- 
respondents on  the  other.  And  it  is  to  be  said  that  they  exercise  the 
discretion  committed  to  thetn  with  remarkable  prudence.  Cases  have 
not  been  infrequent  where  a  bank  in  one  or  other  of  the  great  ports  of 
Great  Britain  has  exercised  this  discretion  in  multitudes  of  cases  during 
manv  successive  years,  snd  to  the  amount  of  many  millions  sterling, 
without  once  making  a  mMake. 


BiLu  Drawn  Aoainst  Futubb  Shvmbntb. 

There  is  anotfaer  ci^am  of  bills  which,  thouftfl  not  drawn  against 
shipments  actaallr  maik.  are  sometimes  clawed  as  "commercial,"  inas- 
much as  they  are  manm  against  goods  that  ^re  to  be  shipped.  In  the 
pomplicated  arranyaaenta  between  mercfaante  of  Afferent  countries,  it 
is  sometimes  the  ease  that  a  hovae  in  Londaa  or  Liverpool  will  agree  to 


FOREIGN    BILLS. 


lea 


aectpl  billi  for  a  drawir  in  considcrotion  of  goodi  to  be  shipped  here- 
after. 

Such  arrniigcnirnl«,  of  course,  argue  a  very  high  degree  of  eon- 
fidenee,  which  confidence  may  lie  well  placed  or  misplaced.  Thil,  how- 
ever, is  not  altogether  the  concern  of  the  banker  on  this  side,  whote 
business  is  simply  to  be  satisfied  that  such  an  arrangement  existi  io 
that  he  may  he  sure  that  the  bills  he  buys  will  be  accepted.  Sometimes 
this  IS  secured  liy  an  engagement  in  writing,  either  special  or  general, 
that  is,  either  to  accept  all  bills  that  may  be  drawn,  or  to  accept  bills 
for  a  certain  amount  and  during  a  certain  time. 

It  is,  however,  not  uncommon  for  an  exporting  merchant  on  this  side 
to  be  so  well  established  as  to  capital  and  rcputat  „,i  that  his  bills  can 
be  negotiated  without  any  engagement  to  accept  Wing  required.  In  that 
case,  however,  a  banker  on  this  side  requires  to  keep  himself  particnlarlT 
well  informed  as  to  the  condition  of  bclh  houses  concerned.  For  change! 
in  these  times  are  rapid.  Partners  die,  and  capital  is  drawn  out.  New 
partners  are  introduced  who  change  the  whole  style  of  the  business-  it 
may  be  for  the  bitter j  but  possibly  for  the  worse.  And  a  strong  hoMe 
in  these  times  of  huge  operations  and  speculation,  may  lose  their  whole 
capital  in  a  year.  It  is  thus  incumbent  on  a  banker  who  buvs  such  bills  to 
be  satisfied  in  the  first  place  that  the  former  rclaUons  between  the  parties 
still  exist,  and  then  that  the  house  on  the  other  side  is  as  good  as  ever. 

The  only  other  class  of  commercial  bill  to  be  noticed  is  that  where  a 
commercial  house  has  offices  on  both  sides  of  the  Atlantic.  A  manufac- 
turing firm  in  Canada  may  have  an  agency  in  England,  and  a  resident 
partner  in  some  large  centre.  The  name  of  the  firm  wiU  probably  be 
changed  in  that  case;  the  Brown,  Jones  and  Robinson,  of  New  York 
becoming  the  Jones,  Brown  &  Co.,  of  Liverpool.  But  the  responsibUitT 
K  the  sam-.  ' 

The  banker  in  all  such  cases  has  constantly  to  bear  in  mind  that  Ul 
bill  IS  a  one-name  bill  and  nothing  more.  In  fact,  such  bills  have  a  stroni 
tendency  to  degenerate  into  accommodation  bills  based  on  nothing. 

ST««Litio  Bins  OF  Banks  and  Financi  Housas. 

This  is  a  class  of  bills  well  known  in  all  ixporting  centres,  and  II 
form,  the  great  medium  of  remittance  by  importers  on  this  side  the 
Atlantic. 

It  is  one  of  the  most  noticeable  developments  of  the  financial  opera- 
tions of  modem  times,  that  foreign  bills  of  exchange  are  dealt  .n  ezaetlr 
as  a  merchant  deals  in  goods.  And  just  as  the  merchant  is  a  necessary 
factor  between  the  buyer  and  seller  of  goods,  so  is  the  bank  or  finance 
house  between  those  who  draw  bills  against  com-nodities  exported  and 
those  who  desire  to  pay  for  commodities  imported. 

HTlen  a  merchant  ships  a  quantity  of  grain,  cotton  or  any  other 
staple  across  the  ocean,  he  has  the  power  to  draw  .  bUl  of  exchange 


; ! 


1G4 


BANKING    AM)    COMMERCE. 


againflt  it.  In  a  primitive  condition  of  things  and  if  the  cominnnitT  in 
which  he  lives  is  a  small  one,  \m  neighbor  who  ha«  bought  goodi  abroad 
and  deiires  to  pay  for  them,  might  approach  him  and  lay,  "If  you  will 
draw  a  bill  for  a  thousand  pounds  against  that  cotton  you  shipped,  I 
will  give  vou  the  cash  for  it.  For  I  want  to  send  that  amount  to  Eng- 
land." Thus,  by  direct  dealings  between  the  exporter  and  importer  the 
wants  of  each  might  be  satisfii-d.  But  this  mode  of  operation  would  not 
diHVr  much  from  dealings  by  barter,  in  the  case  of  merchandise.  For 
the  exporter  would  always  Hnd  it  dilfieult  to  find  persons  who  wanted 
the  exact  amount  of  the  biUs  lie  had  to  draw  against  his  cotton,  while  the 
importer  might  find  that  the  exporter  could  not  draw  for  as  much  money 
as  he  required  to  send;  or  at  the  time  he  wanted  to  remit,  for  anything 
at  all. 

There  tliiis  r  ose  the  necessity  for  an  intermediate,  a  person  with  com- 
mnud  of  money,  who  would  buy  the  exporter's  bills  at  any  time,  without 
reference  to  the  amount,  and  would  be  ready  to  sell  his  own  bill  to  the 
importer,  to  whatever  amount  would  satisfy  his  rrquirements. 

Before  this  could  be  done  the  intermediate  would  require  the  services 
of  a  corresponding  house  abroad;  and  particularly  in  London.  This 
house  might  be  a  banking  house  of  the  old  school, — like  the  Glyns, — or 
a  financial  house  like  the  Barings  used  to  l»c;  and  the  arrangement  would 
be,  that  the  intermediate,  on  this  side,  would  remit  to  them  the  bills 
he  had  luught  from  the  exporter  and  draw  upon  them  the  bills  he  would 
sell  to  the  importer.  These  the  London  house,  or  bank,  would  agree  to 
accept,  on  terms  arranged.  This,  stated  in  its  simplest  form,  is  the 
foundation  of  the  great  masses  of  bills  that  arc  constantly  being  drawn  by 
bankers  and  finance  houses  on  this  side,  on  bankers  and  finance  houses 
on  the  other. 

It  will  be  perceived  that  the  foundation  of  this  business  in  its  elemen- 
tal form  is  the  cxpoht  op  goods,  in  which  term,  as  will  be  seen  later  on, 
more  than  merchandise  is  included,  the  bills  drawn  against  which  are 
sold  to  a  bank  on  this  side,  the  payment  of  which  bills  affords  the  means 
of  payment  of  the  bills  drawn  by  the  banker  against  it.  Thus,  all  these 
bankers'  or  financial  bills  rest,  if  legitimate,  upon  the  foundation  of 
salable  merchandise  or  securities,  exactly  as  all  legitimate  bankers'  loans 
.ind  trade  bills  do. 

The  export  of  articles,  therefore,  gives  rise  to  two  classes  of  bills: 
first,  the  bill  drawn  by  merchant  upon  merchant,  and  then  the  bills  drawn 
by  Iwnker  upon  Iwnker.  This  has  the  appearance,  at  first  sight,  of  that 
objeetiunable  operation,  the  drawing  of  sets  of  accommodation  bills; 
the  first  set  drawn  against  goods  and  having  a  mercantile  foundation,  the 
other  drawn  against  nothing.  The  sale  of  the  cotton  will  provide  the 
means  of  paying  the  first,  but  out  of  what  fund  is  the  second  to  be  paid? 
How  i-un  the  sale  of  so  many  bales  of  cotton  of  a  certain  value  pay  more 
than  one  of  the  bills  drMrn  against  it  for  that  amoun;;? 


FOREIGN    BILLS. 


ICS 


A  raniidrralion  of  the  fmli  will,  lio»evcr,  >|jow  tlinl  lliii  supposition 
would  be  rrronroiif. 

What  tskri  pUce  ia  rcnilj-  this:  a  mcrchmit  in  Xcw  York  Kndl  over 
to  a  Liverpool  mcrrhnnl  a  quantity  of  cotton,  worth,  1ft  us  snv,  a  thousand 
pounds.    Afioinst  this  cotton  he  draws  a  bill  for  a  thousand  |iounds.    This 
bill  is  simply  an  order  to  the  Liverpool  merchant  to   pay  a   thousand 
pounds  to  the  person  who  will  present  that  bill.     But  what  lH-eomo3  of 
the  bill.'     In  the  ordinory  course  of  business  a  banker  in  New  York  buys 
it,  pays  the  ei|»irter  a  thousand  pounds  for  it  (less  ciehange)  and  ob- 
tains the  rijfht  to  collect  the  same  amount  in  Liverpool.      Having  thai 
document,  giving  him  the  right  to  receive  a  thousand  pounds  in  Liverpool, 
he  sends  it  over  to  hi,  correspond,  .it  in  London,  directing  him  to  collect 
the  money  and  place  it  to  his  credit.    When  the  Liverpool  merchant  pays 
the  bill  and  gets  it  from  the  London  banker,  that  banker  will  have'a 
thousand  pounds  of  the  New  York   banker's  money  in  his   possession. 
How  is  the  latter  to  get  it.>  He  can,  if  he  pleases,  write  a  letter  order- 
ing it  to  l>e  sent  over  in  gold  packed  up  in  n  box;  which  indeed  is  some- 
times done.     But  a  much  simpler  process  than  that  is  available,  and  a 
much  more  useful  one,  for  it  subserves  the  needs  of  the  other  side  of 
commercial  operations.     The  importer  has  his  wants  as  well  as  the  ex- 
porter; vis.,  to  ie,i,/  money  over  to  Europe  to  pay  for  goods.     But  in 
modem  financial  arrangements  there  is  no  need  for  him  to  send  a  box  of 
gold.     He  can  go  to  the  banker  who  bought  the  exporter's  bill  and  get  an 
order  for  his  London  correspondent  (who  is  collecting  a  thousand  pounds 
for  him)  to  pay  that  sum  to  the  importer's  correspondent.     This  order  is 
that  second  bill  of  exchange  just  referred  to,  which  the  importer  remits 
and  with  which  he  satisfies  his  obligation.      (This  second  hill,  let  it  be 
noted,  is  drawn  not  against  the  cotton,  but  against  the  money  lodged  in 
the   London   bank.)      Thus,   the   whole  operation   is  complete,   and    all 
accounts  settled  without  the  transmission  of  gold  at  all.     The  New  York 
exporter  gets  the  money  for  his  cotton  from  the  New  York  banker.   That 
banker   is   recouped   by  selling   his   bill    to   the    importer.      The    London 
hanker,  as  the  final  intermediary,  rmiie,  the  money  from  the  Liverpool 
merchant  and  therewith  po.,,.  the  bill,  which  his  New  York  correspondent 
has  drawn  upon  him.     Thus,  although  two  hills  have  been  drawn,  they 
have  not  been  drawn  by  the  same  person  upon  the  same  drawee,  but  by 
diirerent  parties  upon  a  dilTercnt  correspondent  and  to  effect  a  different 
purpose. 

And  the  proof  that  the  second  bill  is  not  an  neeonunodation  one  is 
that  both  of  them  have  ken  paid  without  the  b<irrowiug  of  money  in 
London.  If  the  sei.uKl  bill  had  b.en  drawn  against  nothing,  there  would 
have  be.  n  nothing  wherewith  io  pay  ,1.  But.  as  we  have  seen,  the  London 
banker  had  the  money  in  hand.  At  ihe  elns--  of  these  transactions  none  of 
the  parlies  owed  the  other  anything;  whereas,  if  the  London  banker  ha.l 


|! 


IM 


BANKING    AND    CO.MMERCE. 


|faif1  nn  .iccommodntion  bill  for  n  tliouinnd  poiinda,  llir  New  York  bankrr 
who  drrtv  it  would  hare  owed  him  the  amount. 

It  ifl,  however,  to  be  borne  in  mind  that  merchandiie  ii  not  the  only 
eiportable  article  that  can  be  lent  for  tale  to  a  financial  centre  and  drawn 
againft.  In  these  daTS  of  highly  developed  financial  busincta,  when  gov 
crnment  and  other  loans  are  negotiated  through  financial  houses  in 
London  or  Paris,  the  debentures  representing  them  are  sent  forward,  and 
drawn  against  exactly  as  if  they  were  so  many  bales  of  cotton  or  barrels 
Dt  flour.  The  bills  are  *-'■'  by  the  borrowing  government  to  bankers  or 
capitalists  in  a  finandi^  -^ntre,  who  forward  them,  along  with  the  bonds, 
to  their  London  cott:  ■;.  >''dents.  These  bills  are  accepted  by  a  London 
financial  liouse,  whs  ;  iv  them  out  of  the  sale  of  the  bonds.  In  this 
manner,  loans  to  tht  extent  of  hundreds  of  millions  are  carried  out, 
without  any  movement  of  gold,  exactly  ss  is  the  case  with  mercantile 
transactions. 

In  like  mnnner,  when  a  great  railway  corporation  has  need  to  borrow 
money  in  Europe  on  its  bonds,  they  are  sent  across  and  drawn  against 
as  if  ther  were  merchandise.  The  acceptors  of  the  bills  in  London 
or  Paris  take  the  risk  of  floating  the  bonds  and  accepting  against  them. 


The  Baring  Criiis  Ricalled. 

But  as  these  bonds  have  been  treated  exactly  as  if  they  were  merchan- 
dise, it  has  happened  that  embarrassments  have  arisen  in  connection  with 
them,  just  aa  embarrassments  arise  in  consignments  of  staple  goods.  A 
catastrophe  on  an  immense  scale,  in  connection  with  acceptance  against 
bonds  was  only  averted  some  years  ago  by  the  courageous  and  far-sight- 
ed action  of  the  Governor  of  the  Bank  of  England.  The  case  was  that  of 
the  great  house  of  Barings;  it  occurred  in  the  last  decade  of  the  nine- 
teenth century,  and  created  a  sensation  all  over  the  financial  world.  It  was 
indeed  so  extraordlnnry  as  to  be  deserving  of  permanent  record.  The 
house  of  Baring  Brothers  had  been  known  for  a  century  as  negotiators 
of  government  loans  for  states  and  countries  in  every  continent  on  the 
globe.  Their  character  for  prudence  and  judgment  was  so  high  that  for 
generation  after  generation  any  bond  on  which  they  placed  their  im- 
primatur was  accepted  by  investors  and  found  ready  sale.  Time,  how- 
ever, passed  on.  Old  partners  passed  away;  new  men  and  new  methods 
were  introduced,  corresponding  to  new  developments  in  modern  times. 
The  name  of  the  great  house  was  of  course  retained,  for  it  was  a 
synonym  of  wealth,  almost  equal  to  the  name  of  Rothschild.  Yet,  not- 
withstanding all  the  changes  in  the  personnel  of  the  firm,  the  commercial 
world  in  general  considered  the  House  of  Baring  to  be  as  good  as  ever, 
nnd  bought  its  bills  as  readily  as  they  would  those  of  the  Bank  of  Eng- 
land. 

But  abont  the  time  spoken  of  it  became  known  in  the  inner  financial 
circles  of  I.ondon  that  the  Barings  hod  negotiated  loans  to  an  enormous 


FOREIGN    BILLS. 


J«7 


.mourn  which  they  found  difficult)'  in  placing.  Thli  wal  npecUUy  the 
eaie  with  loana  lo  the  .Argentine  Govermnent.  The  debenture  market  In 
fact  had  become  overafocked  with  them;  yet  the  Barlnga  had  accepted 
againat  the  whole,  and  the  bills  were  con«:«tly  falling  due.  Theae 
acceptances  were  met  for  some  time  out  of  olhei"  resources  of  the  firm. 
They  were  able  also  to  borrow  large  sums  of  money  on  the  bonds.  All 
this  was  whispered  about  among  the  higher  magnates  of  Lombard  Street, 
and  the  whispering  gradually  spread  even  to  circles  on  this  aide  the 
Atlantic.  Such  a  thing  as  hesitating  to  buy  the  bills  of  Baring  had  never 
been  heard  of  in  Xew  York,  but  such  a  heslUncy  did  undoubtedly  prevaU 
for  some  time. 

At  len^h  a  very  eitraordinaty  event  happened,  the  like  of  which 
had  never  hien  known  in  the  fciancial  world.  A  few  of  the  heads  of 
the  leading  banks  of  London  were  invited  one  day  to  meet  the  Governor 
of  tue  Bank  of  England,  and  confer  with  him  on  a  matter  of  importance. 
What  this  matter  was  they  could  not  divine;  but  on  entering  the  bank 
parlor,  they  were  Informed  of  this  very  extraordinary  state  of  facts, 
namely,  that  the  Barings  were  under  acceptance  of  biUa,  mostly  drawn 
against  Argentine  bonds,  to  the  amount  of  ii.r(ee<i  mUlim  pound,;  that  the 
bills  were  coming  due  at  the  rate  of  about  a  million  pounds  a  week;  that 
the  Bank  of  England  had  already  made  large  advances  on  the  bonds; 
that  il  was  quite  impossible  for  the  Bank  to  carry  the  whole  burden; 
that  if  assistance  were  not  rendered,  the  Barings  would  have  to  suspend 
and  miUions  of  pounds  of  bills  go  to  protest!  A  tremendous  piece  of 
IntelUgence  this;  for  these  bankers  knew  that  if  such  an  event  did  happen 
there  would  he  one  of  the  severest  panics  ever  known  in  the  financial 
world,  and  that  not  In  England  only,  but  in  the  United  States  and  every 
great  monetary  centre  of  Europe. 

On  the  bankers  enquiring  what  the  Bank  of  England  had  to  propose 
they  received  this  answer:  the  Governor  informed  them  that,  after  con- 
sultation with  his  coUeagues,  they  had  concluded  that  other  banks  might 
fairly  be  asked  to  share  in  the  burden  of  meeting  the  acceptances,  inas- 
much as  they  were  all  interested  in  preventing  a  panic,  and  manr  of  them 
were  themselves  holders  of  the  Baring  bills. 

After  much  consideration,  and  consultation  with  others,  it  was  iinaUy 
eonclnded  by  London  bankers,  including  the  representatives  of  the  Scotch 
bankm,  to  acquiesce  in  the  division  of  the  burden.  It  was  also  suggested 
that  some  of  the  leading  banks  of  the  interior,  such  as  those  of  Liverpool 
Manchester,  and  other  cities,  might  fairly  be  asked  to  join  in  the  move- 
ment This  idea  was  acquiesced  in,  and  correspondence  opened  with  the 
leading  provincial  banks.  These  aln>  agreed  to  the  principle.  The  only 
thing  now  remaining  was  to  arrange  the  amount  of  the  advance  which 
each  bank  was  to  make  upon  the  bonds,  and  to  such  an  extent  did  > 
spirit  of  mutual  respect  and  confidence  prevail  amongst  these  magnates  of 
hmt  fivnnrt,  that  a  distribution  was  made  without  difficulty. 


I 


I6t 


BANKING    AND    COMMERCE. 


The  Bank  of  England  nndrrtook  by  far  the  largest  share  of  the 
burden.  Then  the  I^ndon  banks,  Including  the  agencies  of  Scotch  and 
Irish  baiiki.  followed  with  their  respertlvr  shares,  and  finally  the  grvat 
banks  of  Manchester,  Liverpool,  and  other  prominent  centres.  The  Bank 
of  England  undcrtodi  to  see  after  the  retirement  of  the  whole  of  the 
acceptances,  and  the  other  banks  paid  In  their  quota  to  the  Bank  of 
England  to  rnnble  the  Bank  to  do  it.  When  these  arrangements  had 
been  completed,  every  banker  In  the  United  Kingdom  breathed  a  sigh  of 
relief,  seeing  that  the  shadow  of  on  impending  panle  which  had  overhang 
the  financial  world  was  dispersed,  end  that  business  could  go  on  as  usual. 
And  not  only  they,  but  bankers  in  great  centres  of  North  and  South 
America,  India,  China,  and  Australia — not  to  speak  of  the  Continent  of 
Europe — also  felt  easier  when  the  dreaded  possibility  of  the  Baring  bills 
bring  returned  upon  them,  protested,  for  tens  and  hundreds  of  thousands 
of  pounds,  had  passed  away. 

As  for  the  great  house  itself,  it  went  into  liquidation.  A  considerhMe 
surplus  of  assets  remained  to  the  partners,  after  the  liabilities  were  all 
discharged,  but  the  prestige  of  the  name  of  Baring  was  permanently 
impaired.  The  partnership  was  dissolved,  and  n  new  company  formed,  of 
large  capital,  which  Is  doing  the  same  kind  of  business,  but  which,  we 
may  be  very  sure,  will  never  overload  itself  with  unmarketable  Hccurities. 

It  has  been  stated  that  the  bills  drawn  by  banks  on  their  foreign 
correspondents  have  their  foundation  in  exports.  This  is  true,  in  a  large 
majority  of  cases.  It  is,  however,  not  uncommon  for  banks  and  capital- 
ists in  London  to  open  a  credit  for  banks  or  finance  houses  abroad,  which 
credit  is  availed  of  by  the  drawing  of  billi.  To  this  extent  the  foreign 
bills  Bold  in  the  financial  centres  of  thlt  continent  are  not  founded  upon 
merchandise.  They  are,  however,  a  mere  fraction  of  the  whole.  And, 
it  may  be  added,  such  drawings  are  invariably  covered  afterwards  by 
mercantile  bills. 

Yet  another  class  of  bills  may  be  briefly  noticed,  vi«.,  guch  as  are 
drawn  by  banks  or  capitalists  upon  thplr  own  offices  in  London  or  Paris. 
These  bills  afl^ord  a  mode  of  raising  capital  which  may  be  profitably  em- 
ployed on  this  side  of  the  Atlantic.  The  bills,  however,  are  of  the  one- 
name  class,  and  no  matte:  how  high  the  credit  that  the  one  name  com- 
mands (and  it  runs  up  inio  very  many  millionfi  in  some  cnses'")  the  money 
market  of  London  «iJl  at  times  discriminate  between  such  bills  and  those 
drawn  upon  a  London  bank. 

There  is  another  description  of  foreign  business  which  has  attained 
a  large  development  in  thtjc  times,  vis.,  the  issuing  of  Credits  by  banks 
on  this  side  of  the  Atlantic  to  importers  of  staple  goods.    The  working  of 

60  It  1».  however,  known  to  old  bankern  that  In  the  fvmt  revulsion  of  1857 
on*  of  the  vreatMt  of  the  eapiUIIst  houaes  was  obliced  to  apply  for  eailBtana* 
to  the  Bank  of  England.  The  Bank  loaned  the  flrin  a  million  sterilnv,  and  en- 
tnwted  the  acleetlon  of  the  securltlei  to  a  well-known  officer  of  the  Bank  of 
Ifcntreal  In  Hew  Tork. 


FOREIGN   BILLS. 


1« 


Ihii  •7it«B  illaitnlM  In  .  .irik|„g  d,g,„  ,1,^  co-op.r.11011  of  bmUag 
Mid  rommnw.    I.rt  u  put  tbe  nutter  in  •  concrete  form,  that  II  mtj  b« 
better  nndentood.     A   woolen   mannfaeturer   In  the   United  Stain  or 
Canada  require,  certain  wooU  which  can  be  had  moat  mnvenlentir  iB 
Aurtralia.    How  li  he  to  gel  them  f    It  would  not  be  rcaionable  for  a  wool 
eiportcr  In  Anatralla  to  lend  hli  good,  lo  Boston  or  Montreal  on  credit, 
"I    k  1."°  '""P"""  '"  ■"••■»"«  '••I'  to  buy  a  bill  to  Knd  to  AuitraUa, 
which  bill  might  be  for  an  amount  much  Ich  or  much  more  than  the  value 
of  the  wool  hi.  correipondent  would  buy.     What  he  doe.  i.  >hi..     A 
banker  In  Boiton  or  Montreal  will  give  him  a  letter,  on  an   engraved 
form,  aiithoriiing  any  corrnpondent  of  hu  in  Au.tralia  lo  draw  on  a 
Ijank  in  London  or  Pari,  for  any  amount  he  need,  up  to  a  certain  .urn, 
the  bill  to  have  attached  to  it  an  invoice  for  wool,  a  bill  of  lading  for  the 
.ame,  and   a  policy   of  in.urance.      With   thii  document   In  hand,  the 
Au.trallan  wool  eiporfer  can  .hip  wool  to  America  and  obtain  c..h  for 
I!  at  once  from  a  hank  In  Melbourne  or  Sydney  by  drawing  in  conformity 
with  the  credit.     The  bill  with  it.  documenU  j.  pre.enled  and  accepted 
m  London,  the  bill  of  lading.  Invoice  and  inaurance  being  paued  on  lo 
Boaton   or  Montreal,  with  advice  of  the  amount  drawn  agaln.1  them. 
The  banker  on  thi.  .ide  of  the  Atlantic  then  advLci  hi.  cu.tomer  that  he 
hold,  the  document,  for  the  wool,  that  Hi  many  pound,  .terling  have  been 
drawn  ag.in.t  it,  which  amount  i.  at  hi.  debit,  for  which  he  i.  called  on 
to  .ettle  by  furniahlng,  on  the  term,  of  the  credit,  a  banker',  bill  on 
London.    Thu.,  the  Aral  dl.bur.ement  of  the  wool  merchant  In  New  Eng- 
land or  Canada  la  coincident  with  the  arrival  of  the  good,  or  the  document 
repre.cnting  them.    And  a  clean  Kttlement  of  the  whole  tr  ,n.acllon  ha. 
been  made      For  the  credit  ha.  been  u^d  to  the  nact  amount  needed, 
«nd  tlif  halancc  is  cuncrllrd." 

Letter,  of  credit  for  the  uu:  of  traveler,  are  on  a  different  fooling 
altogether.  There  ii  no  merchandlM  in  the  caw,  and  the  u.e  of  the  credit 
i*  ..mply  to  tranamit  money  by  bill,  of  exchange  in  the  ordinary  way, 
without  risk. 

One  final  remark  with  regard  to  foreign  bill.  need,  to  be  made. 

The  development  of  menage,  aero.,  the  ocean  by  cable  ha.  given  ri.e 

10  number,  of  monetary  lran.aetion.  between  different  countrie.  in  which 
bill,  are  di.penMd  with  altogether.  A  New  York  banker  can  order  hi. 
London  correapondent  to  pay  money  to  an  applicant  by  cable  menage, 

51  It  I.  «  point  of  vfry  Imporfant  eonnldpratlon  »lth  •  bunker  oho  hai  1...,^ 
a  comm..cl.l  crrtlt  which  b«,on„  pr.ctlc.llv  an  advance  on  Joo^.l«t™nJ^ 

11  tn«  Danker  doea.  he  la  than  under  advance  without  aecurlty  The  onlv  ..^ 
Hon  to  thia  1.  when  the  cuatomer  taealve.  a  bill  ot  ladln.  tor  th.  nu^JIT^ 

r„"a'pj%rd."i;L.''':hr.:u'Tr,":',j::i'.?r„vr.;r-our:- 

era  warehouae  the  hanker  will  merally  loa.  hi.  ^iurtTr. 


-ft 


■>'   « 


HKMOCOrt  nsoUTION  TBI  OMIT 

(ANSI  onl  ISO  TEST  CHAUT  »>.  J| 


1.0 

^^ 

^■a    |72 

Slii     ^ 

I.I 

SUS    |2jO 

11.8 


|i»|^|^ 


/IPPLIEO  IIVMGE 

ieS3  Edit  Main   strHt 

CtB)  *«  -  030o"- Phon* 
{7ie)  2M-  SMS  -Fa. 


170  BANKING   AND   COMMERCE. 

juit  as  easily  as  he  could  by  drawing  a  bill.  The  importer  referred  to  in 
the  former  part  of  this  chapter  can  obtain  a  cable  transfer,  as  it  is 
called,  just  as  formerly  he  would  buy  a  bill  of  exchange.  By  means  of 
this  he  could  pay  a  London  merchant,  with  no  more  loss  of  time  than 
would  be  required  to  pay  a  bill  to  a  neighbor  across  the  street. 

These  transactions,  however,  require  different  arrangements  in  Lon- 
don. For  when  a  bill  is  drawn  at  sixty  days  after  sight,  the  London 
banker  who  accepts  it  has  sixty  days  before  payment  in  money  is  required. 
But  a  cable  transfer  requires  payment  of  money  on  the  spot  Now,  as 
no  London  banker  has  an  infinite  supply  of  money  at  command,  he  has  to 
watch  the  daily  calls  upon  him  for  cash  with  as  much  care  as  a  banker 
does  on  this  side  the  Atlantic.  For  this  reason,  the  banker  on  this  side 
will  be  careful  when  selling  "cables"  to  keep  within  the  limits  prescribed 
for  his  drawing  on  London  for  cash. 


CH.iPTEH  XXIl. 

OVEEDKATTS  IK  CAKAD.  ^  CASH  CKEBXTS  I.  SCOT- 
mAND, 

th.n   o^erHrcf,,.      For  L™e  of  H  ?"!.'  ''"""''  ■"•  *'""d 

the  discounting  of  "  de  bil  ,  ""^ '^  'TT''  "  ■"»«"!n.i>hed  fro" 
of  th«  p„tv  to  be  in  debt  Tb  f\''  °"°"'"«  ""'  '"•"™'  «™unt 
i-  «xedV-t.,e  uJd  'f' direct  "td'  Z^t!'  ""'  t"  "«  ">'  »- 
>ule,  i,  held.     This  ,T.tem  of  „!l,  1  ''"'"""'■  "^"ri'v.  .is  „ 

the  well-known  ™AT,rf"  site"  oTs''  >/  TT'  "''"'  ''°''^-'-  " 
ever,  being  ™n,™„  all  overU^  Zth  of  E  .T'd  ^  T'"^  '■"'="■■  '■'"'- 
consists  simply  („  fi,i„       .     ^  """l  °'  Engfend,  at  least.     This  system 

customer  shallValWd  to  rl  'a  .°-  "S'",  "■"  ''''"''  >"■'"•"  "l  . 
«f  England  too,  it  i  onK.  when  this  ^'ti"  °,"°"'''  ""''  '"  ""-^  P"" 
the  account  is  said  to  b^  oTerdrawn  Th  "'*'  "'""'","'  "  """'"'  «"« 
called  an  overdraft.  If  a  merZnt  ^^' ."''"  ""^r-  ">  ""t  case,  i, 
pounds,  fron,  a  Scotch  or  EnTlhtnfr  °  "f '  "'  "  "■™'-» 
'-an.ger,  whose  business  it  is    take™  tb  .         '  """"""^  '°  "■« 

that  snn,.  Occasions,  howe,"r  do  al  ^"1  °™""'  ^'^"  -«''"' 
*  check  which  overst  psThe  Lft  «  T  "  '5'  "''"='"'"'  ""y  ■'""' 
vertence,  sometime, 'S^^Leut  ptrrrif  lb  """''  ""  '"'";  ™-'- 
responsibility  of  allowing  the  check  to  W  „",.,. "°''"°«"  "''"  *■« 
overdrawn  bv  so  much    and  the  cl,„  .."^u    '  ""  '"™"'  "   "■" 

order.  Or  .^  customer  and  tW  i^  e  "„:  ""  'T'*""  '°  P"'  "  '» 
monager,  explain  that  some.!  .  j  "^  "^  """'''  ""'•''  '"terview  the 
.nd  ask  to  bl  ^owca  to  ovcT      v'™"'""'^'^  ''"^  "■"  ™"»>  to  hand, 

or  two,  to  the  c^rtif*:  ltd  p'o^r'Thc'm "'  '■'•''■ "" "  -«"■ 

not  consent.     If  be  consent,   H.,  J  I,-,  i.  ,  "■■•"nager  may,  or  may 

drawing,     if  be  findstZ  7 ,  I  "    l^^  '^»P°"»it''-  for  any  o.er- 

S  hnds  that  a  teller  or  cashier  has  paid  the  chock,  of 

171 


w  I 


I! 


BANKING    AND    COMMERCR. 


a  custonuT  to  an  nmoiint  beyond  the  sum  authorized,  he  will  call  him 
fcharply  to  account,  and  insist  upon  Ins  getting  the  overdrawn  amount 
paid  in. 

Similarly,  the  debit  balances  of  customers  at  all  pointu  are  constantly 
under  review  at  headquarters;  and  for  this  good  reason,  that  the  loans 
or  advances  of  the  bank  arc  all  to  be  found  there.  Overdrafts,  therefore, 
cannot  fail  to  be  noticed.  If  the  returns  from  a  certain  branch  show  that 
certain  accounts  are  overdrawn,  the  manager  will  be  called  to  account, 
asked  for  explanations,  possibly  sharply  reproved,  and  may  even  be 
suspended  from  his  functions,  unless  he  can  show  that  he  was  authorized 
to  allow  them  by  correspondence.  But  this  is  not  all  It  is  perfectly 
easy  for  a  board  of  directors  to  examine  such  statements  of  debit  bal- 
ances, and  as  all  credits  in  this  shape  have  been  authorized  by  them,  it 
is  easy  for  them  to  see  whether  any  accounts  are  overdrawn.  If  any 
of  thtm  are,  they  will  no  doubt  ask  the  reason  why.  And  if  a  general 
manager  (or  officer  acting  as  such)  cannot  give  good  reasons,  he  is  liable 
to  displeasure  in  his  turn. 

Thus  the  whole  system  of  the  bank  works  harmoniously.  Everything 
is  clearly  apparent.  AH  advances  are  regularly  reported,  considtrcd, 
and  dealt  with  by  the  branch  manager,  and  the  general  manager,  up  to 
the  final  autliority.  the  boird  itself."- 

Otbrdrafts  in  Canadian  Banks. 

But  overdrafts  in  a  Canadian  bank  are  on  a  different  footing  from 
the  outset.  The  rule  is  that  current  accounts  are  all  expected  to  be 
in  credit.  A  general  manager,  therefore,  does  not  look  for  advances  in 
lists  of  deposit  balances.  Such  lists  are  generally  sent  at  much  longer 
intervals  than  the  statements  of  loans  and  discounts,  and  this  for  an 
obvious  reason.  Whilst  it  is  of  the  first  importance  for  a  manager  to 
keep  an  eye  on  the  total  amount  of  deposits,  so  as  to  keep  proper  re- 
serves, it  is  of  only  secondary  importance  whose  particular  r  oney  it  it 
that  is  deposited  with  him.  Mr.  Thomas  Johnson,  let  us  say,  keeps  a 
current  account  with  one  of  the  branches  of  the  bank.  It  matters  little 
whether  the  balance  at  his  credit  is  $500  or  $.1,000.  .\nd  what  he  puts 
in  and  draws  out  week  by  week  is  not  a  matter  of  particular  interest 
to  the  management."^ 

But  if  Mr.  Johnson  owes  the  bank  money,  the  amount  he  owes  is  a 
matter  of  the  first  consequence.  If  he  owes  $5,300  he  may  be  abundantly 
good  for  it.  The  board  may  have  authorized  that  amount;  security  for 
that  sum  may  be  held.     But  let  us  suppose,  and  such  things  have  really 

52  TM"  \c  ff  cinirnp.  the  svstem  In  theory.  Whether  it  Is  properly  worked  out  in 
practice  will  depend  on  the  care  and  attention  the  dlrectori  beatow  on  the  buBlnesa 
of  the  hank.  The  best  system  may  be  badly  administered,  and  produce  poor  resulU. 
But  there  can  be  no  doubt  that  the  syatem  of  advances  prevailing  In  Bcottond  and 
the  north  of  England  Is  a  much  safer  one  to  work,  and  that  under  ft  the  direc- 
tors find  It  much  easier  to  keep  track  of  advances  made  at  various  points. 

B3  If  Mr.  Johnson  has  discounts  or  advances.  It  is.  of  course,  doclrable  to  keep 
an  eve  upon  the  working  of  his  current  balances  as  bearing  on  the  profltableneta 
of   his  account,    cr  othci-n-i=e.     But   what  Is  now    hciT^g    (HsriiRsrd    in    ita    aafety. 


OVERDRAFTS    IN    CANADA.  173 

liappened,  llmt  wl.ilu  $.5,000  U  the  sum  wnicli  Mr.  Jolimon  lios  been 
aulhoriMd  to  borrow,  a  weak  manager  has  been  privailed  on  to  advance 
liim  double  or  trcLle  that  amount.  This  is  a  state  of  things  to  create 
serious  concern.  For  the  general  management  may  be  well  aware  that 
the  latter  sums  were  not  only  entirely  unauthorized,  but  beyond  his 
ability  to  pay.  Underneath,  then,  what  may  be  a  single  line  of  a  state- 
ment, there  may  loom  up  the  horrid  figures  of  a  bad  debt.  It  is  apparent 
then  that  statements  of  loans  and  advances  are  of  vastly  more  import- 
ance than  Stat  ments  of  cridit  balances,  and  that  they  should  be  sent 
much  more  frequently,  and  in  such  a  form  thot  they  will  be  naturally 
looked  for,  readily  comprehended  by  dirictors,  and  attract  the  attention 
they  deserve. 

Yet  persons  on  this  side  the  Atlantic  may  draw  cheeks  which  turn  a 
current  account  to  a  debit;  and  here,  as  in  England,  a  manager  may 
think  the  amount  desired  to  be  perfectly  good,  and  take  the  responsi- 
bility of  allowing  it.  lie  mmt  lake  the  re,pon,ibililg;  and,  at  times,  a 
very  serious  responsibility  it  is.  For  even  perfectly  good  customers  are 
not  all  considerate,  neither  are  they  all  attentive.  A  responsible  arm, 
considering  thimselves  to  be  perfectly  good,  may  at  times  take  libertira 
with  their  account,  and  overdraw  to  a  considerable  amount.  The  mana- 
ger has  now  to  consider  whether  he  shall  refuse  the  check,  and  thereby 
oiTend  and  alienate  a  firm  whose  account  is  valuable,  or  whether  he  shall 
pay  the  check  and  so  make  an  unsecured  advance  without  authority,  to 
a  firm  whose  position  may  possibly  turn  out  not  to  be  so  good  as  he 
supposes. 

But  now,  supposing  the  chic,  'ta  been  paid  and  the  advance  made, 
is  a  manager  to  allow  it  to  appear  as  a  simple  item  in  a  list  of  deposit 
balances,  every  one  of  which  is  presumed  to  be  a  credit,  and  therefore 
returnable  only  at  considerable  intervals  to  head  office?  Such  a  course 
is  obviously  dangerous;  all  which  leads  up  to  this  conclusion,  that  an) 
merdraftt  in  the  deforit  ledger,  if  such  there  be,  ihoM  be  reported 
in  the  eame  etatement  mhich  containe  the  loans  of  the  branch. 

It  should  be  the  business  of  a  general  manager  to  see  that  this  is 
done.  Bnt  the  directors  may  very  properly  take  the  matter  up  also; 
first  seeing  to  it  that  statements  of  overdrafts  are  regularly  laid  before 
them,  and  then  taking  care  to  examine  them,  conferring  with  the  gen- 
eral manager,  and  giving  through  him  such  directions  as  may  be  needful. 
The  board  will  of  course  not  care  to  have  lisU  of  triHing  sums  brought 
to  their  attention ;  they  would  do  well  therefore  to  fii  a  minimum  below 
which  no  report  need  to  be  made  to  them.  The  general  manager  will, 
however,  take  cognizance  of  them  all. 

Danorrs  of  Making  Unsecured  Advances. 
The  making  of  advances  by  allowing  debit  balances  of  a  current 
account,  when  it  is  not  provided  for  as  part  of  an  established  system 
like  that  of  Scotland,  has  been  proved  to  be  dangerous.     The  advances 


II 


BANKING    AND    COMMERCE. 


that  brought  ruin  to  the  CoiDuicrcial  Bank  In  the  enrW  rears  of  banking 
in  Canada  could  never  have  assumed  the  disnatrous  shape  they  did  if 
ihey  had  bien  made  in  the  customary  manner,  viz.,  by  promissory  notes. 
For  it  was  not  simply  that  advances  were  allowed  to  grow  to  enormoiu 
dimensions,  but  the  fact  that  the  bank  was  unable  to  prove  that  the  debt 
was  contracted  by  the  corporation  that  was  supposed  to  owe  it.  There 
were  two  corporations  in  the  case,  very  intimately  connected,  but  legally 
distinct.  One  of  them  was  sound  and  solvent,  the  other  practically 
insolvent.  The  same  officers,  however,  ffovcrned  both.  The  loans  were 
negotiated  by  these  officers.  The  bank  supposed  they  were  advancing 
money  to  the  sound  nud  solvent  company,  to  be  used  by  it  in  furthering 
the  business  of  the  weak  and  crippled  one  of  which  they  had  control. 
Bjt  the  solvent  company,  when  calltd  upon  to  pay,  declared  that  they 
never  borrowed  the  money  at  all;  that  their  officers,  being  also  officers 
of  the  weaker  company,  borrowed  the  money  in  its  behalf.  Whtn  issue 
was  joined  in  court,  the  bank  was  utterly  unable  to  prove  that  the  solvent 
company  was  its  debtor,  and  on  books  and  pass-books  being  produced  it 
was  found  that  both  in  the  ledger  and  ill  the  pass-books,  the  headings 
had  repeatedly  been  in  the  name  of  the  weaker  company.  Thus  issues 
of  hundreds  of  thousands  of  dollars  hung  upon  the  entries  of  subordinate 
officers.  The  case  was  decided  against  the  bank,  which  decision  was  the 
beginning  of  its  downfall. 

Now.  had  the  advances  been  nade  by  promissory  notes,  which  notes 
must  in  the  nature  of  things  have  been  drawn  in  a  clear  and  unmistaka- 
ble maniuT,  the  officers  must  have  signed  them,  either  in  the  name  of 
the  one  company  or  the  other.  Th;  liab'iity,  in  that  case,  could  never 
have  been  disputed,  and  the  bank  wo;:]d  have  been  saved  a  protracted 
and  costly  lawsuit,  with  an  enormous  loss  at  the  end  of  it,  which  loss 
proved  its  ruin. 

This  instance  may  be  said  to  prove  that  the  Canadian  system  is 
better  than  the  Scotch.  But  the  advances  of  the  Commercial  Bank  were 
not  made  on  the  Scotch  system  at  all.  They  were  made  on  a  deplorably 
bad  imitation  of  it,  in  which  its  most  essential  feature  was  lost  sight  of. 
Under  the  Scotch  system,  the  amount  of  the  credit  is  strictly  defined,  and 
4  bond  of  security  taken,  duly  signed,  sealed,  and  delivered,  for  the 
whole  amount.  If  these  advances  had  been  made  on  the  Scotch  system, 
the  solvent  company  would  have  been  required,  at  the  outset,  to  give  a 
bond  of  guarantee,  which  bond  would  have  been  drawn  by  the  legal 
advisers  of  the  bank,  making  the  solvent  company  liable  beyond  doubt. 
Then  further,  that  guarantee  would  have  fixed  the  amount  to  be  ad- 
vanced, an  invaluable  safeguard  against  advances  being  allowed  to  run 
on  indefinitely  as  they  did.  As  it  was,  the  advances  were  allowed  to  run 
to  nearly  ten  times  the  amount  verbally  agreed  upon  at  the  outset.  They 
were  made,  in  fact,  neither  on  the  Scotch  system  nor  the  Canadian." 

54  In  another  fnstatipe  known  to  the  writer,  one  of  the  heaviest  bad  aebtB  ever 
made  by  a  Oanaiiien  bank  arooe  through  advancee  to  a  eerUln  Arm  being  aUowed 
to  be  carried  on  to  the  Bhape  o(  continual  overdrawlntB  of  &  v«ry  ootlv*  ourrent 
account. 


THE    SCOTCH    SYSTEJI.  17, 

It  ii  at  this  tlmo  of  dny  vain  to  think  of  raakini  a   fnnj.™,-.  1 

St.t«,  bnt  .t  i.  certainly  worth  while  to  consider  .he  ,^inU  ta  wh  ch 
the  Seoteh  sy.te,n  ha.  the  advantage.  In  .peakin,  of  ScoUand    let  tt  J. 

.°^i:;rfha.l"  ""•■!^"''}'r:'  -f  Eng,„„;  i.  .ncluded-  o  ,  In^ 
■pecally  that  wherein  the  write,'.  English  experience  wa.  gained. 

Adt.»ni,om  arm  Dis.tnTANTAoM  of  thu  Scotch  i;y.tem. 
The  advantage,  of  the  Scotch  system  are  the  following- 

b.„V      1.  "/'""""  *"■    ™"''°»"'i'^'i    with    trade    bills.     Everr 

banker  know,,  and  every  merchant  knows,  too,  that  there  are  f^ndl 
n^ental  diff,rence,  between  these  two:  first,  in  the  ri,k;  ne"  in  t 
.™lab.l.ty,  and,  la.t  and  n,„st  important  of  all,  in  the  a^™.  of  alt  n! 
,on  they  require  The  risk  of  trade  bills  (provided  onlv  they  „e  bon. 
f  d  and  genume)  is  immensely  less  than  the  risk  of  loans.  Their  avaU- 
.bd,ty  to  bring  in  money  when  due  is  immenselv  greater.  And  a,  o 
the  amount  of  attention  that  loans  require,  it  would  b.  to  speak  „"hta 

;  1°  "'"•  "■""  ""''''  °f  '""■■«  be  exception,.  In  all  bank  ,tate. 
ments,  therefore,  it  i,  of  vital  importance  to  keep  advance,  ^d  trad" 
bU,  separate.     Thi.  is  most  elTectually  done  under  the  Scotch  ,y      m 

which  ."■'  !?'!.?  '"  ■"°«'"'"  ■"f"^""'  «'  "f  1"'°'',  from  tho« 
«h.ch  contain  trade  bill,,  and  they  are  reported  to  head  office  on  d  ffer- 
en     tatement..     But  in  Canadiin  practice  they  are  apt  to  be  confound^, 

torn,  both  ar.  entered,  commonly,  in  the  same  register  and  ledgers,  and 

„ffi.V  ,1.  .  fV/l  '  *"  '"  '""•*•%  mixed  in  a  badly-managed 
office  that  ,t  ha,  taken  week,  of  the  time  of  a  superior  officer  to  dis!^ 
tangle  the  account,  .n  which  they  are  entered,  and  to  fix  the  primary  and 
■econdary  liability  on  the  proper  parties.  ^ 

„    {^V^  "econd  advantage  of  the  Scotch  .y,tem  i.  t',.t  aU  advance. 

^o  matter  in  what  branch  advance,  are  made,  authorisation  must  come 
from  headquarters.  Thi,  ha,  so  long  been  the  established  custom  ,11 
over  Scotland  that  every  person  understand,  it  and  conforms  to  it,  both 
branch  managers  and  customers  alike. 

Hi,  quite  true  that  in  Canada  all  advances  on  credit,  of  importance 
and  those  which  are  to  be  spread  over  a  whole  season,  are,  a,  a  rule 
applied  for  to  the  board,  and  not  entered  on  until  sanctioned  bv  them 
But  it  is  also  a  part  of  the  Canadian  system  that  discount,  of  promiMOry 
notes,  known  to  be  loans,  are  constantly  made  in  a  majority  of  office., 
that  have  never  been  submitted  to  the  board  at  all.  The  first  that  a 
general  manager  knows  of  them  i.  when  they  come  before  him  in  a  li.t 
of  bill.  di.counted. 

(S)  The  third  advantage  of  the  Scotch  system  is  that  aU  such  ad- 


.176 


BAXKISG    AND    COMMERCE. 


v»ncM  are  accompanied  by,  not  mere  cndoriementi,  but  by  bonda  of 
guarantee,  drawn  up  in  legal  form,  and  duly  lignid,  aealed,  and  de- 
livered. Thia  hai  prevailed  in  Scotland  for  generationa,  and  it  it  now 
an  ingrained  habit  of  llie  whole  people,  rooted  by  long  continuance,  that 
when  they  want  to  borrow  money  from  a  bank,  th.y  give  lecurily  for  it 
bv  a  bond.  There  if  the  further  advantage  in  giving  leeurity  by  legal 
documenta,  that  the  guarantora  cannot  but  feel  the  legal  reaponaiblUty 
that  attachea  to  them,  when  Inatead  of  merely  writing  their  namea  acroaa 
the  bock  of  a  promiaaory  note,  often  in  a  very  perfunctory  way,  think- 
ing little  about  it  (,imd  it  ia  undeniable  that  they  do),  they  aign  and  aeal 
«  legal  document  in  the  presence  of  one  or  more  witneaaea.  The  im- 
portance of  having  endoraera  alive  to  their  reaponsibilitica  haa  been  en- 
larged on  already.  Every  banker  ia  well  aware  of  11.  There  ia  under 
thia  Bvatem  the  further  important  advantage  to  the  banker  hlmaelf,  that 
aneh  i>  document  of  guarantee  can  »?arcely  ever  be  forged.  A  branch 
manager  can  never  be  certain  that  the  endoraement  on  a  promiaaory  note 
li  genuine,  unleM  the  endoraer  cornea  in  person  and  aigna  in  his  pretence. 
He  hat  been  authorised  to  lend  John  Smith  up  to  $3,000  on  the  endorae- 
ment of  Thomaa  Malcolm.  When,  then,  the  customer  brlnga  promiltory 
notes,  apparently  endorsed  by  Thomaa  Malcolm,  the  manager  it  apt  to 
be  taliafied.  Yet  Malcolm  may  never  have  aigned  at  all.  What  it,  per- 
haps, more  dangeroua  still,  although  Malcolm  may  have  aigned  the 
original  note,  he  may  liot  have  signed  the  renewal  of  it.  But  o  bond 
of  guarantee  is  not  only  signed,  generally  by  more  than  one  person,  but 
witnessed  in  the  office  of  the  bank.  Thia  renders  forgery  practically  im- 
poasible." 

There  are  undoubtedly  some  disadvantages  in  the  practical  working 
of  the  system.  One  of  these  is  that  in  case  of  an  account  becoming  un- 
aatisfactory,  it  is  more  difficult  to  deal  with  than  if  it  wa-  ipreated  by 
one  or  more  promissory  notes,  coming  due  on  definite  da.  i.  If  renewal 
U  desired,  as  it  almoat  certainl;  will  be  in  such  a  case,  the  opportunity 
arises  of  insisting  upon  payment  or  reduction.  It  ia  generally  •«P'>J«'«i 
that  a  cash  credit  shaU  be  paid  up  at  least  once  a  year,  but  untU  the 
lime  for  retirement  comes,  the  Ucit  understanding  it  that  advances  shaU 
be  continued  without  criticism,  unlesl  often  overdrawn.  But  when  a 
promissory  note  comes  due  the  opportunity  for  criticism  ari.es  naturally, 

and  muat  be  met 

Another  point  of  disadvantage  ia  that  if  a  customer  is  caUed  upon 
to  pay  the  balance  against  him,  and  the  amount  ia  disputed,  it  it  lome- 
timet  diiBcult  to  etUbliah  it.  If  a  tingle  voucher  i  milting,  it  cannot  be 
done  The  writer  hat  a  vivid  recollection  of  a  case  of  this  kind  occurring 
when  he  was  a  young  clerk,  and  of  the  weary  lime  he  had,  day  after 
day,  in  the  inUrvalt  of  butinesi,  and    after  bank   hours,    in    laborious 

M  A  ml.  hu  l»ei.  aom.tlo."  aaoBtrt  by  a  bank  th«  «"!,"•"''»"«' °"* '"J 

Bol.  muat  alia  Ua  nam.  In  «»«  imMno.  of  a,  manamr.    But  It  haa  b.«  Jound 
vary  dlffleult  to  catty  It  out  In  ptactlca. 


THE    SCOTCH    SYSTEM.  ,„ 

™^^V.::d:;'.r;.r:'  rr:.rT"? :""  «■'  •"-  •"■ 

«.«  of  the  working  „f  boih  "  ''"'  '"°'""'  "P""" 

tag  out  or  m«Jlf,|„,  what  ,~™7dT.!  ^  V    ''  «°°^  •'°'""'  ""»  '"•- 

representing  .dv.nce'  ,3^1  pt  fn  en"™?  dii  T""""^  """^ 
ported  into  entirely  different  li.bilttv  I,J  T  ^  ^5'™'  «8'""".  ■■>d 
bill..  Advance,  .houid  "redt  d.ff"'  fT.""°"  "'"""«  '»  *"^ 
•re  plaeed  before  the  boird  oIm  ff  ■"  f'"'-"""-  "hen  .ocomit. 
cority  1.  held,  but"  .llo  "d  1'/"  '■""^"^  *•"  '°">'^<'"  ""«'  «- 
«cur.te  aeeounl  .hoZ  be  ,re„  „f  1"  "7"°""/'«™'t.nee.,  .n 
.d«nee.  to  .he  ..™  party  if  ."/'j'r  '"''  "'"'''  """8  "'"■  »«>" 

II  might  be  well  to  consider  whether  thf  <!™i.I,  .    . 
guarantee  in  the  c..e  of  e.tabli.he7e«i?,.  1,°  w    T,"  °' ■«"'"?  ^7 
.he  prevalent  practice  of  see.r'f  by  Td ot::!;^' ""'  ""  """'"■"«'  "" 

.o  ."uX reithct":f  C™  o";  C-n-fdi"  V-'i  ""  '""  "'"■  °'^"«' 
.opervi,ion.  A  rtriking  in-ta^rgi™  „rdcrthe  h«d"  Z  """'™"°"  " 

«.o«re,nired  iniodg-'^rdtr^^- -rt  tt.r.^r"  '"" 

TW.  understanain,  should  be  wlthe.i.d  ^   ,h     ■- 'l>l><Iav  of i,o.... 

I«  l>.ld  by  .on,,  E„„i.h  ]„a,e.  that  .  ^r™^  '""  °"""  "'  ""  '«"K.     II  ■i.ed  to 

.trument.     They  doob.le.,  ,'"   aLi.lTt'""  T'  ""  "■"  *  """"•W  la- 

Boney  borrowed.  .„d  not  of  a  not.  .tan    „     •"."'"""'"■'  ""'•  """  •»  '«Pr".at 

a  not.  ,lve„  ,„  ,.„„„,„,  „,  ^  mercantile  account 


f^ 


CHAPTER  XXIII. 

BANK  Kinsvia. 


Ratiokali  or  Caih  Riuhtci — How  Much — Or  What  Cha«actiii— 
Canadiax  I.ioal  TiHDn — PaoroiiTioM  to  u  Kik  •»  Baku — 
Othir  Foihi  or  Ruiiitii — Baric  Baiamch— Call  LoAm— Cok- 
DiTioxi  Ai  TO  Both. 

IT  hai  been  pointed  out  that  the  Ant  idea  of  one  who  hai  commenced 
the  boiinen  of  talcing  care  of  other  people*!  nonejr,  and  ha«  engaged 

to  repay  it  on  demand,  will  be  to  keep  the  whole  of  it  In  hii  lafe; 
and  a  humoroui  example  of  thil  feeling  hai  been  given  in  the  addreu  of 
the  preiident  of  a  newly-orgnnixed  banl:  in  the  United  Statea.  There 
would,  indeed,  be  some  juitiUcation  for  this  courie;  for  how,  lueh  a 
banker  might  lay.  can  1  poaiibly  tell  when  these  people  will  want  their 
money,  or  Aoie  mac*  they  will  want,  if  they  need  any  at  all.  Until,  then, 
he  had  arrived  by  experience  at  what  may  be  called  a  law  of  average, 
aa  to  the  demandi  of  hii  cuitomers  (at  a  whole)  from  time  to  time,  he 
would,  if  prudent,  keep  the  larger  part  of  the  money  depolitr''  with  him 
within  reach.  But  ai  time  went  on  luch  a  banker  would  arrive  at  thia 
general  average,  and  after  providing  for  thia,  and  alto  for  unforeieen 
rmergenciei,  would  feel  himielf  lafe  in  niing  the  balance  of  hii  depoti- 
tor's  fund*  in  traniactiona  yielding  inccreat. 

Through  luch  a  proceif  ai  thii  the  whole  bniineii  of  banking  haa 
palled,  until  in  the  evolution  of  eventi  general  rules  and  priniciples  have 
been  arrived  at;  applicable,  some  to  one  condition  of  things  and  some  to 
another.  For  conditions  dilfer  in  dilTerent  countries  and  also  at  differ- 
ent times.  It  ia  universally  conceded,  for  example,  that  in  the  case  of 
the  Bank  of  England  a  larger  percentage  of  actual  money  reserve  is 
needful  than  is  the  case  with  an  ordinary  bank ;  and  for  this  reason,  that 
the  Bank  of  England  is  the  depository  of  the  spare  money  of  all  the 
banks  in  the  Kingdom.  In  the  balance-sheets  of  all  London  banks  will 
be  found  the  significant  item,  ciuh  on  hand,  and  in  the  Bank  of  England. 
They  all  keep  large  amounts  of  money  in  the  great  central  institution, 
not  that  they  get  any  interest  for  it,  for  they  do  not,  but  for  the  sake  of 
convenience,  and  partly,  also,  for  safety. 

But  these  London  banks  are  themselves  custodians  of  the  spare  funds 
of  the  banks  of  the  interior,  all  of  whom  keep  accounts  with  a  London 
bank,  and  usually  have  large  amonnts  of  their  reserve  money  lodged  with 
them.  It  thus  hns  come  about,  by  a  gradual  evolutionary  process,  that 
much  of  the  reserve  money  of  the  whole  Kingdom  is  in  the  shape  of  bal- 
ances due  by  the  Bank  of  England;  a  fact  which  at  once  suggests  that 


BANK    RESERVES. 


.1.  '™ 

•l>'  g™t  „,ii„„,i  i„„i,„t,„„  ,|,„„,a  I,,         , 

•"'•"«••  '"  "f'  I  ,!oM  In  I,,  vault,  ,SL,„uir    '"°P""'™  "f  ""-li 
po-itor,  wore  wl,.,!!.'  ,„ercn„t|'c  ''''  **  "'■"•■•■•y  "  "■  J- 

bound  .„  r..coive  „,  .„.„  .o^H^  „""?.;  ojf''  7"".'  '"  ""  >*™" 

l«nAL  TtNMR  for  thr  Bnnk      H„nl.„  i         ,  Jf    ^     ^'""    '"    ""•    ™> 
the  .»„.  „;•  M,  BoJoTfJI  ,"'  ^'"^'""^  ''"•  l^-'i-)"!  that 

the  pro-n/.r,  „f  the  rorporation  t„  „-,.        ,  ■"  "°"''  '"  ""Ply 

flank  n>u.l  prrfor..  pav  In  ,1  Tf  „  .  ^  *"  '°  °  '*'■"■'"••     ". 

•"""<.,  i.  le^al  tcndclf  ."/^h'  'Lr/"""'  ''  ^"^"^^i-  Gold,  of 
Silver  coin,  are  ree„gni/ed  al  C^^t^ZT  ''7'"  '°  '"^"  "• 
two  po„nd_„„  „„,„„„,  evIdentTy  S  '^  th  '""  ""'•'  "•  '"-  "'™'  <>' 
criy  about  with  him,  or  wherewith  •  """  °"  i""*"'-)""!  «r 

change  made.     It  I.,  howcveTlH  ""' -»«"""  b' P«id,  or  .mJl 

of  trade  and  oomme;,"  '   """""'"''  '-'  ""  '»'«"  P"rp<>« 

En^a°nJ:St'::':;:':;.'j;rr;'l-\™-^,<-f  f-.-.nd  <'•■' »»"- " 

England  I.  the  onlv  pl.„  whe  e  t   '  b  •  "^  "'  ""  ""''  ="' 

o'.nd..  thi.  Bank  li  thrLat'Lli,  ,  T7,  "'"  """"  '"""'  ^ 
".hor  bank  In  the  Ki.X  an  k«p  1.°' a^l^f,  S'  '"'  """"-•  ^'"^ 
tnglan.i  note.,  and  wu      hem  ^-  T     "'  "\"''»'»e  rejone  in  Bank  of 

no  bank  note,  in  EnZd  «r"  tl^Z  «  ""l  °''"*°"°"'-     »"'  " 

gold  coin  mu.t  nece-.^ilvbe  kept  f„r  ,E  "'''  '"""^''  °  '"«^  »>"''""'  of 
II  ha,  come,  theref"i  ,'  Z  ">«  acquirement,  of  bu.ine... 

.gcof  the  -.e/ve  oTorB  nk  .h':«r: ':  r'Tr''  "•°'  "■=  p'™"- 

•idered  neeessarv  for  .n  „.J  .  "  '"'«''"  «»'c  »hnn  i.  eon- 

."«,  t„  «f..r;;  e-nt  "o'th  Ta^k'  'nlr;-   "  'T'"'  "•"''•  '""■ 
whole  finaneial  world  wHh  a.  nTueh  ear        T'  """'  "  """'''^  ^^  "«= 

-ic.,,a,.,,e.  ather  j;:'c^/;;:-::^--- """ ""  "™- 

i.  .uffieient  for  ordinnr,  ,™     about  twenty-fve  per  cent,  of  liabilitie, 
of  .econdar,  re    r  .11  ^^2  '"°'"°'  """""'  "«"  «  «"« 

vcment..     The  latter  il  f ,1     ' ,      ,eT  1^  T    "tI''  ■'"'■'  °'  '"" 
Iwentv-five  per  ecnt   h.«  b„en'  j     /j  ^'"'  Proportion  of 

•». ....... ,...,  ™  =-":-«  ;r,;.rr,-s:i:'C,; 


lan  BANKING    AND    COMMERrE. 

fully  rnogninlng  tills  prrirntngt  »•  n  tiinonahli'  onr,  have  alwiyt  de- 
llini a  ti)  linn-  II  liioJf  cimilMiliorv.  for  nnsoiit  >it  lortli  In  other  rhaptrn. 

Cii.\>«rTiii  or  Tii«  Riu»>. 
Auuming,  tlirn,  th»l  Ihli  nmounl  mnjr  bt  r«l«nnlilc  for  s  b.nk  to 
krfi.   tlu-  qiicitlon  miir  f»irlv  bt  r«lKd  ai  to  Ihr  prcclif  iliapi  In  which 
liirh  a  rcK^^f  should  'bf  hrld.     Thlt  bring.  »•  to  the  que  .lion  of  what  I. 
Irgal-tender  money  In  Canada? 

a  i.  to  the  credit  of  Canadian  financier,  and  lianker.  that  they  have 
alwnvi  maintained  that  gold  li  the  only  proper  ba.i.  for  a  moneUry 
.v.teui.  refu.Ing  tn  lie  drawn  away  by  the  plaii.ible  argument.,  at  one 
time  lo  general  in  the  United  Stale.,  In  favor  of  a  double  .tnndard.  And 
whatever  niav  b-ve  iR-en  Ihe  cn.e  in  He  early  day.  of  Ktllement,  it  la 
ertain  that  fir  more  than  .iitv  year.  pa.t  the  .ingle  .tandard  of  gold  a. 
legal  lender  lin.  b.en  nnolulely  maintained.  The  only  lime  when  .pede 
pavraenl.  were  ever  .u.pended  in  any  of  the  Brlll.h  Province,  wa.  when 
the  counlrv  was  in  a  .tale  of  civil  war.     Thi.  wn.  In  1837. 

But  about  fort  vear.  ago-or  immediately  after  Confederalion-ll 
itrenuou.  attempt  wo.  made  to  introduce  a  Government  currency  whicll 
would  operate  Kimewhat  a.  that  of  the  Bank  of  England  do..  In  Eng- 
land. The.e  Government  note,  were  to  be  legal  tender,  eicepl  at  the 
Government  Trea.urv.  There  they  were  to  be  redeemable,  on  demand, 
In  gold.  Under  thi.  meaaure  It  wa.  intended  to  abolLh  bank-note  cir- 
culation altogether.  The  majorit;  of  the  bank.,  however,  .trenuou.ly 
re.l.lcd  thi.;  and  after  a  controveray  extending  over  several  .e..ion»  of 
Pavllanienl,  a  compromiae  wa. 'Snally  agreed  to,  by  the  ten...  of  winch 
the  bank,  retained  the  right  lo  i.sue  note,  to  the  extent  of  their  capital. 
An  act  wa.  pa.sed  aulhori.ing  the  i..uc  of  Government  note.,  but  only 
ot  .mall  deno.nination.,  for  general  circulation;  and  al«.  of  note,  of  large 
denomination,  for  u.c  between  bank,  in  .etllement  of  claim,  againlt  each 
other.  Both  alike  were  to  be  redeemable  In  gold.  The  final  ba...,  there- 
fore. In  the  country  wo.  .till  to  be  gold.  .  ,  .  .u 
In  connection  with  thi.  on  important  clauae  wa.  introduced  ™°  »« 
Banking  Act.  which  CMurcd  that  the  bank.,  at  all  lime.,  .hoold  hold 
large  amounts  of  thee  Government  note..  The  cl.u.e  wa.  th..,  that 
whatever  amount  each  bonk  might  hold  from  time  to  time,  a.  a  ca.h  re- 
,cr>e,  at  Iea.l  forty  per  cent,  thereof  .hoald  con.l.l  of  Government  note.. 
Being  then  under  obligation  lo  hold  .uch  large  amount.,  it  became  a  mat- 
ter of  vital  importance  lo  the  bank,  that  thU  currency  .hould  never  fail 
to  be  redeemable  in  gold  on  demand.  When,  therefore,  the  Dommion 
Note  Act  wa.  pawed,  the  banker,  of  the  day,  in  conference  with  the 
Government,  prced  .trenuously  for  a  broad  foundation  of  actual  gold, 
to  be  alwav.  available  in  the  Treasury,  and  that  Government  bond.,  duly 
authorized  by  Parliament,  .hould  be  held  for  the  balance.  TheK  idea, 
were  acquiesced  in  by  the  Government,  and  on  thi.  foundation  the  legal- 
tender  not,-»  of  Canada  have  ever  since  retted.     It  i.  important  lo  not 


BANK    RFSERVKS.  ,^| 

II-.I  tl,rr.-  h,.  „„,-,  Wn  „„  ™v«.ioi,  In  which  Iho  Trc...,ry  f,ll„|  ,„ 
rr.,«„d  ,„.ln„tlv  l„  nny  ,1, ., ,1  r„r  „„l,l  „,„1,  „,,„„  ;,  ^"        '   """'  " 

B,..  n.  the  l„w  of  thrlr  „r«.  ,„,!„„  l,l„d.  ,he„  ,„  keep  .Mea.M^,,; 
p«  „.„(.  ,„  Covrrnnunl  „„,„,  „„d  ,hi.  „„,ler  h«vv  p™!!  c  ,h„  do 
..  .  .n„„or  of  f.c..  k...,.  n,„rc.  How  „.„ch  more  ■l.T,,^, heir  ot' 
n.„eh  more  com-  •  ie„l  to  h.ndl.  tl,„„  the  bag.  of  g,ld  Ihev  we  e  orZw 
ZZTjtW.  r\  "'"'"•     ^"''  """^  "'"  """need  ih..    he  ":  S 

cxr^--  ■■■- '"-'  •—  -  •- "-  r„'.hr:::! 

p™etie„„,  lmp„„|h,e  for  .  th,  o"e.^r"lt  ^w"  •.'"  I".  eTof'-C; 
gold  h..  never  oecnrred  In  the  experiene;  of  bank,  of  C.n.d.  .MooA 
■I  hi..  Wen  known  thit  bar,  of  .pecle  have  been  .to  en  T  ,^  * 

the  f«.l  that  all  engraved  note,  ear,  be  imitated  ar  ,rg,d,  a  very  pr." 
tKal  danger,  a.  experience  hu  proved.  In  view  ,  oth  til  l„Mr 
tie.    the  Government,  ,fter  con.„ltati„„  with  the  .  ...e™  of  banr.    Lj« 

^  r^.r  ;^tM:?  ^:=cvt^^  i;- 

"ed  ^th  le'.aT't  „h"  ""•.  ^'7  """"""^  "■"'''  "'»"  "•™  ""  ^^  """^ 
lied  with  legal-tender  note..     But  a.  a  matter  of  faet  all  the  bank.  rf„ 

oThe-oC^VeL'^Th"'  ^  *""''  ••.f"^  "^  •""  -^    ""^  -'"-  -^ 
to  tne  Omernment.     There  ha.  never  been  an  l..ne  of  lhe.e  return,  in 

"*"*  '"  «°"  '■''  '""»"'«  "ho  are  traveUing,  „,  who  have  a  u.e  f " 

""  th.  counter  ff  Ti  taSS'S^rtn™?  b' ■  'S  .TJ". T,'""  """  "■"'  »""»« 
thoruad  to  Inue  note.  .lain."  tfc.  l™  .™L.  J,  ?. '  '*"'"''  ^'  """I-  '•  au' 
r~enl  lu  own  raplui.  Thi.  &ff'o?Tn«l  °/  Go»e™men.  bond,  which  rep- 
jn.m.nt  or  c.nMa,  re.t  partly  up"  .  «rto^S".''„.j  .'■-,'''•. '''°!"  °'  "»  O*"' 
bona.  Md  partly  upon  „«.  '„  JtouM  be  nMeS  r^«K„  T".°' ^  °'  Oivemment 
*«  jWctly  limit,  ih,  .mount  of  ntS;  iS,?  ™v  hi  ?.;  "i"  '"?  """In'O"  Not. 
Monrltle.  and  oraalr,  that  for  any  Soim  bfi^L  fh.  '"'''  '••'"■'  Oovemment 
*»a  b.  held  In  acluu  gold  coin  beyond  thie  nmount  dollar  for  dollar 


I   i 


18S 


BANKING    AND    COMMERCE. 


goldf  at  times,  in  the  traniaetion  of  butlncH.  These  demands,  however^ 
are  always  very  slight.  Another  reason  for  keeping  gold  is  that  in  cer- 
tain conditions  of  exclmnge  with  Great  Britain  and  also  with  the  United 
States  it  is  the  most  profitable  medium  of  remittance.  This,  however, 
docs  not,  as  a  rule  call  for  what  may  l>e  called  large  amounts,  that  is,  in 
proportion  to  the  total  reserves  of  the  bank. 

A  third  is,  that  long  and  traditional  habits  with  Canadian  bankers 
have  led  them  to  value  gold  as  the  final  foundation  of  all  their  transac- 
tions, and  to  krep  an  much  of  it  as  they  can  with  convenience  and  under 
compliance  with  the  law.  It  may  be  truthfully  said,  that  in  spite  of  the 
great  convenience  of  legal-tender  notes  in  practice,  there  ts  not  a  Cana- 
dian  banker  but  would  feel  more  satisfaction  in  carrying  gold  in  his 
vaults  to  represent  Ihe  whole  of  the  cash  reserve.  Another  reason  (rather 
a  remote  one  in  pracLice)  why  the  banks  keep  a  certain  supply  of  gold  is, 
that  on  the  ra.j  occasions  that  a  "ran"  takes  place  on  any  of  them,  nothing 
will  satisfy  demands  as  cfTectually  as  gold.  Indeed,  it  has  been  known 
more  than  once,  in  the  experience  of  both  sides  of  the  Atlantic,  that  the 
mere  piling  up  of  gold  on  the  counter  in  sight  of  all  and  sundry  who 
came,  has  been  sufficient  to  stop  a  "run"  altogether.  Fifty  thousand  dol- 
lars is  the  merest  fraction  of  the  reserve  of  r-jst  of  our  banks,  but  fift> 
thousand  dollars  in  gold  coins,  piled  ap  on  the  counter  in  front  of  a  pay- 
ing teller  will  generally  satisfy  all  but  the  roos)  nervous  applicants. 
When  the  people  see  so  much  gold  they  are  ashamed  to  ask  for  it. 

But  now,  granting  that  the  cash  reserves  of  the  bank  must,  of  neces- 
sity, consist  partly  of  legal-tender  notes,  and  assuming  that  twenty-fire 
per  cent,  of  liabilities  may  be  considered  a  normal  amount,  why  shoold 
not  a  bank  keep  the  whole  of  this  percentage  In  Government  notes  and 
gold?  That  none  of  the  Canadian  banks  do  this  is  known  to  all  who 
examine  their  statements  to  the  Government.  On  the  other  hand  It  Is 
equally  well  known  that  the  sum  total  of  what  the  banks  call  their  atail' 
ttble  retervet  is,  as  a  rule,  far  beyond  the  twenty-fire  per  cent.,  and  it 
more  frequently  as  much  as  fifty  per  cent. 

A  critic,  however,  may  say,  that  as  the  liabllitiea  of  the  bank  are  sU 
payable  in  legal  tender  or  gold,  why  not  keep  this  twenty-five  per  cent 
at  any  rate  in  this  solid  shape?  Demands  are  daily  made  on  the  banks 
by  other  banks,  and  it  is  certain  such  demands  cannot  be  satisfied  by  ten* 
der  of  balances  due  from  banks  abroad  or  by  call  loans.  Why  then  not 
keep  in  tlie  vault  the  kind  of  material  which  can  be  used  on  the  spot? 
This  is  a  very  reasonable  question,  to  which  every  banker  is  bound  to 
give  reasonable  consideration,  with  a  view  to  satisfying  not  only  himself 
but  the  banking  community  and  the  public  generally.  For,  In  any 
country,  none  are  so  much  interested  as  bankers  in  the  stability  of  banks 
OS  a  whole.  But  this  is  more  particularly  the  case  in  Canada,  where, 
under  the  operation  of  the  "redemption  fund,"  all  the  banks  are  practi- 
cally guarantors  of  each  other's  notes.  No  persons  watch  the  returns  of 
the  reserves  of  the  banks  with  so  much  care  as  bankers  do.     Bnt  with  far 


BANK    RESERVES.  jjj 

.nd  Government  notes,  he  would  undoubtedly  do  it      8,7^    r    .*^ 

N«  yo*  .t  l^edi...  e.U.     TTrLt!e!":Sh'BSr'n°  Nr?'„,'S 

.Imort  „  .vilable  ..  if  he  had  locked  it  up  in  hU  .1     wTr  v 

it  .vaUaHe  in  the  intereouTK  of  bank,  by  d»fta  for  ^w;h  ^  Z^' 

^^^^  -Tf  :r.hrc.rh  ri'"^ '°  '^-  --'  -  •  -- 

Utiuzatioh  or  Spau  Fundi. 

WhJ.t  A/r'f^'Tl''  f"'  "'■»""•«-'■>•  <»""«ted  with  thi.  matter. 
WhU.t  the  fi„t  inahnct  of  every  Unker  i.  to  keep  hinuelf  ..fe,  uader  aU 


|ii:i 


mi 


184 


BANKING    AND    COMMERCE. 


circumitances,  it  is  equally  his  instinct  to  endeavor  to  make  as  much  profit 
as  he  can  out  of  the  funds  at  his  daily  command.  This  has  long  led  to 
the  consideration  whether  spare  funds  cannot  he  so  employed  as  to  yield 
some  interest,  and  yet  be  absolutely  safe  and  at  command  when  wanted. 
It  is  obviously  only  in  great  financial  centres,  where  vast  masses  of  monej 
are  constantly  to  be  found,  that  such  operations  could  be  devised ;  accord- 
ingly, it  is  only  in  London  and  New  York  where  they  are  developed  to 
any  large  extent.  They  are  found  indeed,  but  only  to  a  limited  degree,  in 
smaller  financial  centres.  Now,  in  London,  for  one  or  two  generations 
back,  the  balance-sheet  of  every  bank  has  contained  amongst  its  assets  this 
significant  item,  ^oanf  at  call,  the  significance  being  that  this  item  was 
invariably  included  as  a  part  of  the  cash  reserve  of  the  bank  and  not 
nmongst  its  lonns  or  investments.  Caah  on  hand,  in  Bank  of  England,  or 
at  call;  this  form,  slightly  varied  as  it  may  be.  but  the  same  in  substancCj 
has  appeared  in  every  London  bank  statement  for  fifty  years.  And  the 
fact  that  it  has  so  continued  and  is  in  full  force  to  this  day,  is  proof  that 
it  has  worked  satisfactorily. 

The  same  conditions  that  have  prevailed  in  London  have  also  arisen, 
and  had  influence  in  New  York.  Aloney  can  be  loaned  there  with  a  large 
margin  of  security  and  with  an  assurance  of  being  returned  on  demand, 
to  a  class  of  borrowers  of  high  standing.  It  has  been  so  for  a  sufficiently 
long  term  of  years  to  enable  the  system  to  be  tested.  And  as  it  has 
yielded  similar  satisfactory  results,  ittt  banks  have  steadily  followed  the 
course  purused  in  London  and  placed  money  out  on  call,  repayable  on 
demand,  with  a  large  margin  of  security,  taking  for  it  whatever  rate  may 
be  current  at  the  time.  And  long  experience,  in  every  variety  of  circum- 
stances, even  in  sharp  crises,  has  proved  to  bankers  that  they  can  do  this 
with  assnrance  of  receiving  it  when  wanted.  The  bankers  of  Canada 
well  know  the  importance  of  having  their  ordinary  reserves  at  absolute 
command;  and  if  at  any  time  any  events  had  transpired  which  cast  m 
iliade  of  uncertainty  over  this  fundamental  requirement,  it  would  have 
been  discontinued  beyond  doubt.'^" 

Much  that  has  been  observed  with  regard  to  placing  spare  money 
and  keeping  part  of  a  banker's  cash  reserves  in  New  York  applies  equally 
to  London.  The  whole  trade  between  Canada  and  Great  Britain  gives 
rise  to  banking  transactions  in  the  shape  of  sterling  bills  of  exchange  or 
transfers  of  money  by  cable.     Indeed,  if  the  amount  of  such  bills  passing 

58  There  are,  however,  call  loans  put  out  In  smaller  centres  of  flnance  than  New 
Tork  or  Xxtndon.  In  fact,  wherever  there  le  a  etock  exchange,  of  eufflclent  macni- 
tude  to  fflve  rlBe  to  larye  daily  transactions,  there  Is  the  opportunity  of  placing 
out  moner  strictly  at  call,  on  rhe  security  of  stocks  and  bonds.  But  bankers  are 
well  aware  of  the  difference  between  such  small  centres  and  those  of  continental 
or  world-wide  magnitude  like  N*m'  TOTk  or  London.  This  difference  la  not  so 
much  in  the  safety  of  the  loans  aa  In  the  certainty  of  repayment  of  large  amounts 
Immediately  on  call.  It  has  aonaequently  been  the  practice,  especially  by  the 
larger  banks,  to  pla<w  a  limit  on  the  amount  of  money  they  loan  at  call  In  smaller 
centreii.  reser^-lnj  the  larger  operatlona  for  New  York  or  London.  But  as  to  eafety, 
there  is  m  much  of  this  la  the  »maUtr  centres  as  the  larger. 


BANK    RESERVES. 


18S 

Mirou)tli  the  hnndi  of  the  twnbera  tl,.>  >.        »     , 

eertained,  i,  „„„,d  be  fo„„d1„"ff'"d  aT  f  • "'?  """■  """  •»  ■»■ 
.ween  Canada  and  the  Zfh  "iX  "f,  tA"  "'  ""=  '"'''  *- 
ecntre  in  London.  It  i,  ,  ™„.,  „77'  .  v  '"""""o""  finally 
dian  bank,  to  keep  an  c^n^t  "  h  .  bankTl'  r'°"'  "*  »"  C""- 
at  eo,nn.and  there      With  the  maioritv  ^f  '1  ^"^''"^  '»  l-ve  money 

^^"rr;rt,^^=~t^^:rrter 

.eeond,  ea.h  balanc  ,  dne  on  deiand  f™l  T^'L  ■".""  °""  P""""'™! 
York  and  London,  but  .omettoeMn  I^  °"'"  """•"'  8^»"»Uy  '»  New 
on  demand-or  it  n,./™ .  Tn,  J   "  "  ""    "  =  ""'^'  "«'''  PV"' 

i..  e'lheVtt  'thet„r?,r,r  ""  '°  "'"'^'  ""^  «>'  "'«''» 
rawed  and  fail  lo  r«p„"d  Itl  ^"7  "  ''"=  "'^  ^"^^  <^'°'»'- 

"oney  on  call  n,:;X  fli  '.neCnd  .  d  "•"i  Vl°  ""^  '»"°-'' 
hi.  loan  by  selling  neurit  e.      TW.      f  "*'  ""=  "»■*"  "^  '""« 

th».  make  .ueh  trfnraS'undl^^'^J,'  '^Zl  T''  ^"'f.  "^"y-  "'' 
if  Is  .nfficlent  to  reply  that  time  «„?  •         '""""■     To  all  which 

brought  lo  this  test,  bSh  lhe,er„de  ,"P"'""  ""'  '^'  *'"«"•  When 
..rated  to  be  ,„cee,  fT  t  o Tatne;.  t''7  T'l*""  '""'  ^"^ 
ttere  ha,  hardly  been  knol  »„  w  "^  """^  '"  '"«<=  «"««•. 

.»de  of  .ransaeL.™  whi^anv  X  r?'  IT"?,""  """""^  -J"' 
<>™.nd..  No.  that  no  Jf  h^e^^Tail"/  n'^w  V  rt  L""""""  " 
ond-rale  eoneerns  have  stonne,!  «.™     .  ^  '  ''"  ■°""=  •«• 

ration.  With  whon.  .he  SdL'S 'aret  .rUittf  k'"  "-^ 
eonnlj,  have  tver  f«ile,l  t„  ..         j  .     ,  °''  °'  'Kpuig  ac- 

.urpri.e  to  tho.e  not  a^a"  ted  w.lh  Z  .  b-  .  .",°"'^  ^  '  "-'""  "' 
scarcely  ever  been  an  in.t.nr  .he  subject  to  learn  that  there  ha. 

loan.,  when  a  delay  even  Jor.;  ZT  ""  ""f™  """°"'°"'  '"  -" 
«.  -etual  lo..  of  LhlnevhaTWarceT  1°  '"r"""'  '»■'  *" 
"-and  experience  have  bo^rror/lrfrr  X^tllrU^" 

"Pon  a.  part  of  .  l«nl.-.*c^h  ™~?'"''.  Sff"'  ™''  """'  ■»"»■"  ».  *„kM 
th.  mm.  „,„„„„  ,"^  "»'<'' f'f'n™  .Kln,l  .mer^enol...  rom.whl.^J 
moM,  c„  b.  ^bUtart  ™f„:r.\  """*"'■  ""  ■>•  '"  "••  „,n  Sir  .^ 
•Ithl.  .w.„„.,„„,T;„%'"'"«  ■""■  •  ""It.  by  a  c.„.a,.„  bank.r  ar."P  u^ 


186  BANKING    AND    COMMERCE. 

mnneys  due  by  bankers  in  financial  centre*,  and  cash  placed  out  on  call, 
are  both  available  at  any  time  within  twenty  four  hours.'" 

There  are,  of  course^  occasions  during  which  the  signs  of  threatened 
disturbance  in  financial  matters  have  become  so  serious  that  bankers  have 
thought  it  prudent  to  draw  in  balances  due  them  by  other  banks,  and  to 
call  in  the  money  they  placed  out  at  call.  Such  a  time,  for  example,  was 
to  be  found  when  what  was  known  as  the  "silver  agitation"  rose  to  socli 
a  height  in  the  United  States  as  to  become  the  main  factor  in  a  Fresiden- 
tial  contest.  Canadian  bankers  well  knew  the  dangers  involved  in  this 
question,  and  were  convinced  that  gold  would  rise  to  a  premium  if  the 
views  of  certain  parties  prevailed.  They  had  previously  taken  the  pre* 
caution  to  have  all  their  contracts  for  loans  at  call  made  pagable  in  gold; 
but  in  addition  to  this  it  was  thought  desirable  by  some  to  draw  away 
money  altogether  from  the  scene  of  possible  disturbance,  leaving  only 
such  balances  as  were  absolutely  necessary  for  the  conduct  of  business. 

This  matter  is  of  interest  to  merchants  as  well  as  bankers.  For  they 
should  undoubtedly  so  manage  their  affairs  as  to  have  a  reserve  of  cash 
— in  hand,  or  in  bank,  or  bills  undiscounted,  or  a  reserve  of  credit  un- 
drawn upon  with  their  banker.  If  not,  they  may  be  compelled  to  stop 
payment,  even  though  solvent. 

60  It  may  leeic  ttnnga  ttutt  a  banker  can  reckon  upon  money  at  his  credit  In 
London  belnj  as  much  at  bU  command  as  If  he  had  it  deposited  In  a  »»nk  In  Nsw 
York.  But  to  such  pflrfectlim  hav*  axchanse  operattona  between  these  nnancUl 
centres  been  brou^t  tha.t  bUU  of  •xcban^.e,  either  at  sight  or  time,  can  at  ones  be 
negotiated  and  the  amoimt  placed  to  or«dit.  with  as  little  loss  or  time  an  It  would 
take  for  a  merchant  to  draw  a  che^  on  his  own  bank  In  the  aame  city.  And 
If  an  exacting  critic  should  object  that  this  Is  not  a  auinclent  reliance  In  such  an 
Important  matter  as  cas^  reserves,  inasmuch  as  financial  disturbances  would  Im* 
pede  Ita  operation,  the  reply  must  be  that  expertence  Awb  not  Justify  this  con- 
tention. There  has  never  been  a  Ume  in  the  heavleet  crisis  in  which  money  could 
not  be  tranaferred  from  London  to  New  York  or  Montreal  by  means  of  bills  of 
exchange,  or  cable  transfers.  Tho  only  difference  between  the  tranaferrinc  of 
money  In  a  crlala  and  In  an  ordlrarr  time  is  In  the  rate  of  exchange. 


CHAPTER  XXiy. 

BANK  INVESTMENTS  AS  EEBEKVES. 

^"'VZ  \""'"  ^"'"--""-Should  B.  .V.ootm...  ^s-o  AvAa- 

I?„e  „    ''  Tf '  '"i"'.";'  -"""'"ing  "hat  may  be  died  .  .eoond 

line  of  .afcty  and  defence  in  the  .hape  of  Inve.lmcnt,      The.. 

.nveatment.  „„„l,  i„  ,he  nature  of  thing.,  if  they  are  to  answer  the  D^ 

pose.  eon,i„  of  .ecuritio.  that  ean  at  aU  tin,e.  L  ea,  ly  reaT"ed      E 

at  once  differentiate,  h,.  investment,  from  tho.e  of  a  private  individ™ 

ne  .  ™ralfT  .'  "''°"  '"""""^  ^"'  '"  "•=  "^«"'"  -"<•  of  «■"«'- 
Ztr,  T  "''""«  "P""  "■=  ''°""  »■«>  ""-J""  of  their 

™^T.  M  °r"  r'  T'^°'*""^  ^™''"^''  ">"'  extraordinary  „.„. 
rin,  i.  the  fi...  pr  ncple  that  dominate,  every  movement  that  a  banker 

7Mr:L:r''"" " " "  "'"'*'-  - '-  '"=  -'-^->  <"  — «"• 

In  fact,  the  word  "mv»lment."  a,  „,ed  in  reference  to  a  banker", 
buame,.  ha,  a  radically  different  meaning  from  that  which  apperta^  to 

Lel'le^r'tZ  '"••  ''™/  P'''"=  "^'"'•^"'^  ""■*'  of  making  .n 
mvctment,  the  pnmary  condition  he  think,  of  i.  per,nane^ce.     If  h.  i. 

Ltt  ^whlT  7"!  ^'  ■"'/'  ■"'  "'"""»"^'  ■■«  ■■«?■  "  "■  "-e  bank. 
But  when  the  need  i.  for  .teady  interct  and  .ecurity  of  principal,  he 
take.  ,t  out  of  bank  and  buy.  .omething  that  can  re.t  nndilrbed,  «" 
wen'eluw-'n  ,.  ""  ''"f'""  '"'  """'  "  "l-^  °»  intere.t  to  . 
K  h    l!™  .°T'fi  "  '""*  ™"'y  °"  "■°''8«g<=  f"  '"-g  term.. 

If  he  become,  a  .tockholder  in  a  bank  or  other  company,  he  thi,.k.  not  of 
U.e  r«I...blene..  of  the  .ecurity,  but  of  the  permanence  of  the  corpora- 
tion     And  he  act.  with  regard  to  investing  in  bond,  on  the  .ame  rule. 

But  with  a  banker  thi.  idea  of  permanence  i.  out  of  place.  Hi.  In- 
Te.tmcnt.,  so  called,  are  really  a  part  of  hi.  fund  to  meet  liabilitie..  But 
not  h..  ordinary  and  daily  recurring  liabUilic.,  but  .uch  as  are  eilr«„- 
duiary  which  ari.c  under  special  circumstance,  and  at  inlenahi  of  time 
.uch,  for  example,  as  when  a  bad  harvest  cause,  scarcity  of  money  and  a 
heaver  demand  for  it  both  from  depositors  and  mercantile  customer.,  or 
when  a  .eason  of  bad  trade  supervenes  and  continue,  year  after  year  with 
the  same  result. 

If  a  banker's  whole  spare  resource,  are  employed  in  dlsconntine  bill. 
«.d  making  buaine..  loan.,  he  will  find  when  .uch  a  time  .upervene.,  uid 
*  °"'»  "f/'PMits  or  contraction  of  circulation  set.  in,  that  he  cannot 
reduce  his  discount,  without  embarr.«.ing  his  cMtomer..     In  fact,  at  such 

IK 


a 


!■  U 


188 


BANKING    AND    COMMERCE. 


a  time  the  majority  of  liia  commerrial  ciiitomers  could  not  respond  at  •U' 
to  his  demands  for  rrdtietton.  Instead  of  that  they  will  want  more 
money  from  Aim.  Thus,  instead  of  his  being  a  tower  of  strength  to  the 
circle  who  do  business  with  him,  he  may  become  weak  himself. 

The  Investments  of  an  Enolibh  Bank. 
Experienced  bankers  in  old  financial  centres  like  those  of  Great  Brit- 
ain have,  th'>refore,  long  found  the  necessity  of  placing  out  a  certain 
percentage  of  their  resources  in  securities  which  can  be  realized  without 
disturbance.  In  all  the  statements  of  English  and  Scotch  banks,  but  of 
the  London  ones  especially,  we  find  the  item  of  securities  owned  by  the 
bank  figuring  prominently.  These  securities,  let  it  be  observed,  ar^  the 
actual  property  of  the  bank  and  must  not  be  confounded  with  call  loam. 
Take,  for  exam])le,  the  following,  which  may  be  looked  upon  as  a 
typical  instance,  inasmuch  as  the  bank  in  question  combines  within  itself 
almost  every  description  of  bank  business  as  carried  on  throughout  Eng- 
land. With  its  head  office  in  London,  where  the  firm  of  Barclay  Bevan 
&  Co.  was  for  generations  known  as  one  of  the  most  conservative  (and 
}et  most  prosperous)  of  the  great  banks  of  the  metropolic,  it  is  now  a 
joint  stock  corporation  (under  the  name  of  Barclay  &  Co.,  Limited),  in 
perfect  touch  with  the  commercial  interests  of  the  whole  country,  its  cus- 
tomers representing  every  class  and  interest. 

The  paid-up  capital  of  the  bank  is  $13,100,000  (the  figures  are  given 
in  dollars  that  they  may  be  the  more  easily  followed).  The  capital,  of 
course,  can  never  be  demanded,  and  though  sometimes  considered  as  a 
liability  for  bookkeeping  purposes,  it  is  a  great  error  to  include  it  along 
with  such  liabilities  as  can  be  demanded. 

But  when  we  look  at  the  item  of  deposits,  that  is,  of  moneys  that 
can  be  actually  called  for,  we  are  struck  at  once  with  the  enormoni 
amount.  Deposits  amount  to  $1 65,8 1 8,000.  The  reserve  to  meet 
this  immense  total  consists,  in  the  first  instance,  of  cash  in  Iinnd,  or  in 
the  Bank  of  En^lard,  or  out  on  call  or  short  notice,  $14,335,335. 

This  is  what  wc  have  described  as  the  ordinary  reserve,  kept  against 
ordinary  demands.  But  the  bank  has  a  provision  for  extraordinary  de- 
mands also,  in  the  shape  of  invfitmentt  to  the  amount  of  $i3,6l3,735, 
being  nearly  the  same  amount  as  the  ordinary  reserve. 

These  investments  are  summarized  as  follows  in  the  balance  sheet  of 
the  bank: 

1.    British  Government  securities  and  Bank  of 

England  stock    $18,643,000 

3.    Metropolitan  and  British  corporation.stocks 

and   bonds    8,938,000 

3.  Indian  and  Colonial  Government  securities, 

including  guaran.:ed  railways 7,550,000 

4.  British  railway  debentures  and  guaranteed 

and  preference  stocks 5,592,000 

5.  Other  securitiea   7,928,000 


HA\K    INVESTMENTS    AS    RESERVES.  ,89 

^f  avlabihty.  The.v  c.„  be  r,„luod  „„  .,  „,„,•  be  r,„„ir..d  within  .  .h«^ 

....0,  «„d  .„  enable  the  bank  l„  „,eel  extraordinarv  de,.,»nd.  without  1 

lurUnee  to  tho.e  mere.nlile  c>..lomcr.  who  depend  „,,„„  it  for  .upplle,. 

In  looking  over  this  .umnwry  of  investment,  it  i,  i„tere,tin,  to  no- 

'.'■,  °?u  °,'  ^7°  P™""  "  '"  ""■''  "■'"■•IfiMlio"-  Th„.,  for  e„niple 
while  the  leading  position  i.  given  to  Consols  and  other  British  (lovern- 
ment  seeuri tie.  it  is  ciirioi,.  to  note  that  Bank  of  England  .(or*  is 
grouped  with  them,  thus  plaeing  the  Bank  of  England,  in  point  of  St.- 
Wlty  and  eredit,  on  a  par  with  the  British  Government  itself.  This 
of  cour.e,  rvHeel.  the  opinion  and  judgment  of  the  directors  of  only 
one  of  the  many  l»„k.  of  London,  but  that  judgment,  let  u.  remem- 
ber, i.  the  re.ult  of  .everol  generations  of  knowledge  and  experienee- 

and  U  a  striking  tribute  to  the  unique  position  oeei d  bv  the  Bank  of 

fcngiand  amongst  the  linaneial  institutions  of  the  world.'  For  tliire  i. 
really  nothing  like  it,  unless  perhaps  the  Bank  of  Franee  niav  be  in- 
cluded in  the  .ame  category.  The  .tability  of  that  great  Bank,  aiuid.l 
the  constant  political  upheavals  of  the  country,  is  one  of  the  most  re- 

markable  phenomena  of  modern  times. 

Rcrerting  to  the  classification  of  the  Barclay  Company's  investments, 
I  ""  JT'"  '"'""•"i'-K  •"  "'"'■  that  CorpnraliM  .lock,  '„,„!  h„„,l,  are 

placed  before  Indian  and  Colonial  Government  securities. 

The   corporation   bonds   referred   to   are   probablv   those  of   British 

mmncipalities-cities   and   towns   ehiefly-and   it    is  "interesting    to    Ke 

how  high  a  place  they  hold. 

But  the  .toe*,  must  be  those  of  manufacturing  or  trading  companies, 

«1  which  there  is  an  immense  variety  quoted  on  the  London  Stock  Ei- 
■    change,  and  of  all   possible  degrees   of  stability.     It  is  interesting  tc 

note  that  there  are  stocks  of  this  description  which  are  con.idered  to  I 

at  lea.t  equal,  a,  a  hanking  investment,  to  the  bond,  of  our  own  Govern- 

Trent. 

We,  however,  on  this  side  of  the  AUantic  might  classify  the  seeuri- 
tie.  dilTerenlly.  For  even  with  regard  to  the  bond,  of  m'miieipalities, 
n  IS  a  question  if  the  element  of  municipal  trading  now  so  prominent 
will  not  mtroduce  a  very  considerable  amount  of  uncertainty  as  to  the 
financial  position  of  such  corporations. 

As  to  stocks  of  trading  corporations,  called  on  this  side  of  the  Atlan- 
tic Industrials,  they  surely  cannot  be  compared  for  stability  with  the  ob- 
ligation, of  the  great  colonies  and  dependencies  of  the  Empire.  Their 
deb,.nlures  are  worth  nearly  as  much  a.  consols,  and  might  weU  be 
placed  immediately  after  them. 

The   next   two   classification,   are  natural   enough.     British   railw« 
bonds,  with  their  guaranteed  and  preference  stocks,  are  a  class  by  them- 
selves j  and  their  stability  ha.  long  been  proved.     It  i,  noticeable  that 
ordmarj-  stocks  are  not   included.     They  are  all  either  guaranteed  or 


lOO 


BANKING    AND    COMMERCE. 


prrferrnce,  though  fvrn  with  these  the  qnestion  niny  ariic,  guaranteed 
by  whom? 

The  final  item  of  nearly  $8,000,000  of  "other  securities"  ii  one  in 
whieh  there  may  be  endlt-ss  scope  for  variations  in  value  according  to 
exigencies  of  the  times,  and  the  judgment  of  trained  experts  may  find 
constant  opportunities  for  exercise  in  considering  them. 

Investmbnts  or  Canadian  Banks. 

It  will  also  be  interesting  to  compare  this  classification  of  invest- 
ments with  that  of  the  Government  statements  of  Canadian  banks.  This 
classification  reflects  generally,  though  not  absolutely,  the  consensus  of 
both  the  Finance  Department  of  the  Government  and  the  Council  of  the 
Bankers'  Association.     It  is  divided  into  three  heads,  as  follows: 

1.  Dominion  and  Provincial  Government  Securities, 

2.  Canadian    Municipal   Securities,  nnd    British,  Foreign, 

or  Colonial  Securities  other  than  Canadian. 

3.  Railway  and  other  bonds,  debentures  and  stocks. 

This  classification  is  not  materially  dilFerent  from  that  of  the  Lon- 
don bank.  The  first  item  is  the  same,  with  the  exception  of  the  omission 
of  bank  stock.  We  have  nothing  analagoua  to  the  Bank  of  England  in 
Canada. 

The  second  and  third  items  correspond  to  the  second,  third  and  fourth 
in  the  London  statement;  but  they  are  less  specific  and  more  compre- 
hensive. 

In  considering  the  Canadian  classification  it  will  be  evident  that 
other  considerations  than  relative  stability  of  value  have  governed  it. 
Dominion  and  Provincial  Government  securities  naturally  come  first, 
but  there  is  a  very  wide  difference  between  the  value  of  the  two. 

The  second  item  includes  under  one  heading  classes  of  investments 
that  arc  as  different  from  one  another  in  stability  and  value  as  can  be 
conceived.  In  the  same  column  are  included  all  sorts  of  Canadian  mu- 
nicipal securities  (town,  city  and  country  alike,  in  all  the  various  -prov- 
inces), and  British  public  securities,  which  last  item,  of  course,  includes 
consolt.  Then,  in  the  third,  there  is  no  distinction  made  between  railway 
bonds  and  stocks,  though  it  is  evident  that  for  purposes  of  bank  invest- 
ment these  two  are  widely  different  in  character.  Railway  ttockt  are 
subject  to  such  fluctuations  and  manipulations  as  to  put  a  majority  of 
them  rather  into  the  category  of  speculative  holdings  than  solid  invest- 
ments that  should  be  chosen  by  a  bank.  (It  will  be  noticed  that  in  the 
London  classification  all  the  stocks  arc  either  guaranteed  or  preference.) 

The  Canadian  bank  statement  might  be  amended  with  advantage  in 
many  particulars,  and  in  none  more  than  in  the  columns  showing  their 
investments.  Thus,  if  the  object  of  the  differentiation  of  the  assets  be 
to  show  how  much  of  a  bank's  funds  is  employed  in  dfscotmting  and 
how  much  in  investments,  one  column  for  each  would  be  sufficient.     This 


BANK  INVESTMENTS   AS   HESEHVES.  ,9, 

dIrtncUon  i.  on.  of  the  hlgh«t  importance;  for  th.  total  .nount  of  th. 
ixllr^  f^  «ni  ^  ""■■«"'■'  "mmnnlly  of  th.  country,  „d  to^ 
the  invchncnt.  woald  .how  wh.1  provUion  the  rule,  of  the  buk  tbon,ht 
t^rn"'         """"''""y  mergence.,  th.t  I.,  to  .eeure^oTpt 

Ihe" ,wo"'Fo"r  ^''th'""'  l''""!''  ^  "  "■■»""'''•  P""""'™  '-'-<«'• 
incM  two.     for,  on  the  one  h«nd.  If  an  eicmlve  miplf  />f  •....• 

.0  prev.„.  the  who,,  of  the  fnnd.'of  Z  ^'Z'"^   LT^'^ZZ 

of  c..h  and  a«II.He.,  a.lghl  be  invded  In  Government  .ecurilj,  J^d 

«    ave  the  authorltlc.  of  the  bank  from  .11  the  anxiety  "r°2Tf,"m 

he  charter  Ihrongh  it.  repre.entatlve.,  wonid  certainly  complain  tM  thi. 
.tyle  of  manaf -ment  wa.  not  ,„]fi||i„g  ft,  „bj„,  „',  the  bank',  exi,! 

".7™"  "      """'"  "*  "■"*"  '°  *«  ■"-"'''«d.  and  witi  Zl 

at  a^it  wo!;f/L'""^'  "  !'  °r'"^  ""'  ""  '»"''  ""^  "-  inve.tmn.ta 
Ite  nrlrin^  """""'  ""■"  ""'  ""  """■«"•  «"  "■"''ing  inade- 
quate provLion  for  emergencie.,  or  that  their  ordinary  ca.h  re«urce. 

holder.  might  complain  that  the  bank  wa.  not  earning  .ufflcient  proT 
GENiBAL  Chahacthh  Or  A  Bank'.  Inte.tm.nt.. 

to  ^n.f'f  r""""  °"'"'  '""■•'-»™"  of  «  bwk,  unlc»  the  whole  I. 

udZ^t  °f  '''""^"'■"™'  «™"«".  "  "  evident  that  the  experienced 
Jndgmen  of  a  manager  or  b«,rd  of  director,  would  «„d  ample  Mope 
to  the  election  Even  to  municipal  .ecuritie.  there  1.  con.iderable  dif- 
.rcald"  ■"''""^,'-''  -'"',  although  it  may  be  .tated,  ta  ttc  hot, 
of  Canadian  municipal  bodie.,  that  none  of  them  to  the  older  provtacel 
ever  made  default  in  the  payment  of  either  prtodpal  or  in"re.t  BuJ 
Ujl.  cannot  he  .aid  of  the  munieip.litie.  of  "ihe   Ltbwe  t   "s L.  of 

hem,  m  the  excitement  of  the  great  "boom"  of  an  early  day,  entered 

unabirfXr„  tT''  T  ""  '"*'"'  ""•P'^"'  «■'/'-  ;n°Wy 
Ze  „f  ?M        k"  "  T""  ™  "  ~-"P""°i'"  with  their  creditor.-, 

.tate  of  thing,  however  that  may  ne^.er  be  repeated 

ex„."'  '"f""'  r""  "'  ""'"''  '""iti".  there  i.  infinite  Kope  for  the 

.hLr.  i  "^'r'  '"''  """  '"•"'  "■  "■""■^  °'  enterp,i.er.„ch  „ 
.h,ppmg  and  manufacturing  companie..  It  i,  to  be  .uppo.ed  that  no 
prudent  banker  will  choo.e  the  .tork  of  „ch  companie.  .'^  .ubj«^^  f"° 
tovcmcnt.  The  fluctuation,  are  far  too  .eriou.  for  .uch  a  fieldl  t 
<entured  upon,  amounting  ..  they  do  (experience  .how,  it)  to  a.  much 
..  fifty  per  cent  and  upward..  Of  the  .took,  of  railway  and  other  i„- 
d„.,r,al  corpj,rat,o„,  Canada  oifer.  only  a  .lender  .election;  and  tb"y 
would  .carcely  b.  thought  of  for  invertment  by  .  b«,ker.  Pn.d.n<^ 
would  .uggot  that  he  .hould  confine  him«lf  to'  4e  bond. 


M  4 


IM 


BANKING   AND   COMMERCE. 


The  bond«  of  rellwmyi  of  the  whole  continent  offer  •  verjr  Urge  Held 
of  •flection,  and  M  do  thoie  of  induitrlil  and  ieml-publlc  undertakings. 
Tlieic  l«it  are  continually  increalinK,  and  are  preiented  by  thtir  pt»- 
motrn  and  agentl  in  every  variety  of  attraction.  Thil  U  eipecially  th. 
cnie  with  the  more  •peculatlve  varicticl,  and  above  all  with  thoie  relat- 
ing to  gold  mining.     But  IheiC  thould  be  confldered  ai  out  of  the  realm 

01"  a  banker.  j     r       ii 

There  remain  to  be  coniidcred  the  bond«  of  railw,  yi  and  of  weU- 
citabliihed  undertaking!  of  a  commercial  or  iemi-commcrcial  character. 
With  reipect  to  theie,  a  banker  roust  needs  eiercisi  a  far  more  criti- 
cal judgment  than  >  private  individual.  That  a  man  may  do  what  he 
likes  with  his  own  is  proverbial,  and  true  enough  within  limitations. 
But  no  man  may  do  what  he  likes  with  money  he  holds  in  trust.  In  in- 
vesting such  money  he  will  do  well  to  act  on  the  established  rule  that 
high  interest  denotes  poor  security.  Yet  a  banker  can  scarcely  avoid 
feeling  the  attraction  of  high  Interest.  He  is  investing  for  the  sake  of 
the  interest;  that  is  cerUin.  And  when  a  choice  of  investments  is  before 
him,  as  it  continually  will  be,  the  higher  figure  will  ineviUbly  attract 
attention.  A  difference  of  one  per  cent,  in  the  return  on  a  considerable 
amount  of  bonds  wUl  make  a  perceptible  difference  in  his  profit  and  loss 

statement.  *       i        • 

There  are  always  two  impulses  in  such  cases— that  of  enterprise 
uid  that  of  caution,  the  former  saying,  take  the  risk  and  get  the  higher 
return;  the  other,  be  careful,  for  in  seeking  higher  interest  you  may  lose 
soae  of  the  principal.     It  need  not  be  said  that  the  latter  is  the  voice 

to  be  listened  to.  .  .   ,.    l       i 

But  mere  caoUon  wUl  not  be  sufficient  in  the  case.  A  banker,  in 
considering  investments,  wUI  take  means  to  acquire  mfonuawn;  he  wdl 
make  comparisons;  be  will  look  into  antecedents  and  range  of  fluctua- 
Uons;  be  will,  perhaps  above  all,  consider  the  personnel  of  the  fartu, 
in  lontrol.  If  his  information  as  to  the  last  is  unfavorable,  he  will  do 
well  to  lake  the  beneSt  of  the  doubt.  For  bonds,  as  well  as  stocks, 
though  not  to  the  same  extent,  may  be  subject  to  the  operations  of  the 
giants  of  «nince,  whereby  innocent  "lambs"  are  «eeced.  Ahme  all, 
mlh  regard  to  bond.,  he  leiil  ckoote  out  (Jose  that  ore  fi"'  preference. 

A  banker  will  certainlv  observe  another  rule  of  investment,  vis.,  to 
dmde  hit  rift..  And  in  so  doing  he  will  divide  not  only  amongst  cor- 
porations, but  amongst  classes.  So  much  of  ordinary  railways,  so  much 
of  street  railwavs,  so  much  of  light  and  power  companies,  so  much  of 
navigation  companies,  so  much  of  iron,  cotton,  wool,  flour,  and  so  on; 
this  will  be  the  rule,  as  well  as  so  much  under  thU  control,  and  so  much 
under  that.  He  will  thus  ensure  a  general  average  of  safety,  for  it  is 
scarcely  possible  that  the  same  cause,  at  the  same  time,  can  affect  them 

•"■  u      J  1.. 

A  banker  will  revile  his  investments  from  time  to  time  as  he  does  lus 
discounts,  and  pass  judgment  upon  them  in  de'ail.     In  so  doing,  he  can 


HANK    INVESTMENTS    AS    HESEHVjiS.  ,9, 

«r»e  fund  th.t  i.  ,..p„„„,ed  by  balldin^  '^J         ™„ge„.i«.     A  «- 
fund  at  .11."  ^  Building  .„d  machinery  i.  no  rcwrve  ' 

»u-.,„,.  .„,.  .„„  .....'^Jl'nU" r,  XVJ;  ';4'„V",';  '"•'""•  "'""'■-" 
•nd  otiur  naioiiabia  liondi  Pronu    In    Oovarnmut    nr-eurlllM 

£2.%o".-;r  r  ,•.-,':  oM-^^x^'unru-"  -•"  »«"•"  •-.  -u,. 

Uk.  >j.lr  bona.  ,.  .  b.„k  ,„j  ob7."n  '.rano-  o„  'r'""'"  "°"  '^^  -"I" 
than  that  at  which  th.,  couM  «•.«„«  bin.  ™.v.  ^"°  "  '  """">  '■  ■•'•  ■»!. 
"c-lPt.  To  thi.  ,t  w  b.  t.pllM  JS«  a  ™».,l,  ,'  '^  """■  "  ■■»  ""--ua. 
ll<K)d  crrtlt  can  alway.  obuln.av.not.  frZ^S.^^'."  «'""'*«>'rt"«  cone™  ,.. 
dlv.r.lon  of  funa.  from  p,„„t,"r:^^  trTn.™,^'"'  "''  "■*'  "  "  '•"••■■  • 
rat.  of  lnt.r..t.    But  It  I.  not  .1;,.  .^!.  '   '"  "'""l"aa   th.t   ylria   a   low 

from  It.  bank.™  ..  li'ZT  ^^x^'.^",^""'  -»-"»  «*»  •"«'"  " v.n« 
ana  ar.  oon.tr.l„.a  to  r.fo«  ."n  lh"r  IJonaZ  'T  "  """■■  "■°"  «  "'""'■ 
>o  a  commorclal  hou.,  of  havln,"  i^„rof  „?!?,  m  ""'  '^'  "'■"'•••■  'ban. 
Knc,  ,rt.e..  they  can  .pply  to  anj^i;  So,^!.*; '"."*  ""'^  "  "»'  «  "  •»"■ 
bayona  It:  or.  In  th.  I..,  „V,rt.  th'y^;'  om  ThJ,  ':L"*:  '"  """  "•""'■  "  •«" 
I.  .vld.nt  that  a  n™  i„  .n^  ^."tton  "n";,'  u'''T^''  "?  ""  "■•"■«•  B-t  It 
ctan,™  in  th.  prlc.  of  commoaitl«°  and  bT'  i-  "?*  «■"""•«•  "  tavorabl. 
•r.  pncluaM  from  doln,  it.  Th",* „  "L  '  u.  ".V  "  ',  """  "f"  ""'•" 
bam.  In  ,0  .tron.  a  |».l,io„  a.t  th"y  1'  """.*"  """""al  Proni.  held., 
•ma.  that  blow,  no  matter  how  .to™y  '   ""•"   '"■"'   "■   "'   "» 


CHAPTEh  XXI'. 

noinuTT  AXD  aouunu  im  ouiikal. 

SiCCaITT  »;1D  SlCUWTIM  TH10»lTIC«lt»  COKMDIHD,  WITH  PlACTICAl 

ArrLic«Tioii»— Or  Sicwkitt  m  Oixuai.:  It»  LimT»Tio««— Pi«- 

■OXAI,     SICUHITT— EllDOIlKMlKTt— Ou*»«NTII»— S«CI.'«ITT     TlUlt 
OK  GOOM. 

SOME  of  the  obtfnulloni  In  thii  nnd  the  prrccding  chapltri  will  h«v« 
btfn  found  In  other  portioni  of  thli  work  where  model  of  doing 
bniineM  are  referred  to.     (See  chaptera  on    Loam.)      They    are 
repeated  here  becauw  of  their  Inlrlntic  imporlanee  and  beoaoae  the  que»- 
tlon  with  which  thla  chapter  if  concerned  li  •peclflcally  thai  of  ttcnritf 
and  the  varloua  coniideratlonl  connected  With  It. 

In  one  of  the  rtrlklng  icenca  of  "Hamlet,"  the  great  dramatllt  make, 
the  Prince  of  Denmark  lay  to  Horatio  while  they  are  Itandlng  In  the 
churchyard  talking  together:  "la  not  parchment  made  of  iheep  ikini?" 
To  which  hU  friend  replica:  "Ay,  and  of  calf  iklna,  too,  my  lord." 
Hamlet  rejolni:  "They  are  iheep  and  calvea  too  that  leek  out  auurance 
in  that."  A  biting  larcaim,  and  one  that  haa  proved  only  too  true  In  the 
experience  of  many  an  unfortunate  money  lender,  who  relied  for  what 
Shakcapcore  calli  "aaaurance,"  but  what  we  generally  name  iecurlty, 
upon  the  mere  poaacMlon  of  parchment  deedij  forgetting  that  the  real 
aMTirance  la  not  in  the  parchment,  but  in  the  property,  wha'^ver  It  may 
be,  that  the  parchment  purportl  to  held.  "Purporti"  la  a  ver^  impor- 
tant word  In  thii  connection,  for  deeda  do  not  alwaya  fulfil  the  purpoie 
which  the  holder  anpponea  they  do:  A  deed  may  be  improperly  drawn', 
It  may  be  algned  by  a  party  who  hat  no  right  in  law  to  convey.  If  he 
■igna  iir  an  official  capacity,  let  ui  iay  ai  curator,  tniitee  or  what  not, 
the  inrtrument  creating  lii«  authority  niny  be  a  faulty  one."  The  con- 
veyance of  itaelf  may  be  one  that  la  agalnit  common  or  itotute  le^; 
aa,  for  example,  certain  conveyancei  are  prohibited  by  the  Banking  .  S; 
or  the  whole  document  may  be  a  forgery,  iigncra  and  witneaaet  alike. 
But  even  If  the  parchment  itaclf  it  ttri-iiy  reguUr  In  terms  and  the  con- 
veyance authorixed  by  law,  it  may  atiU  faU  abort  of  being  what  it  pur- 
porta  to  be ;  I.  c,  .ccarily.  For,  if  it  ii  a  tlUe  to  land,  the  land  may  have 
fallen  out  of  cultivation,  with  buildingB  Jilapidated,  fences  thrown  down 
or  destroyed,  and  a  plentiful  crop  of  weeds  and  new  underbruth,  which 

«  An  instance  ot  M,  is  altorted  bv  som.tl.ln.  th.t  took  place  In  one  of  th. 

n.MI.nd  counties  ot  Enrtind,  .1..™  a  bank  took  over  a.  "»»*";*;.^"^ 
deeds  of  a  propert ••  valued  at  ««0,MO.  Trouble  arose.  It  wai  aseaaaarr  to  pro- 
JJS  oS.n  .M  de-d.:  -►.n,  to  .h.  dl..,:.t  of  tb.  bank.  tb„  ,.™  pro.oj^«l^ 
a  hl.b-cusa  co.,vsyano.r  mtsrly  worthless  to  convey  a  ner>tlabl.  1,11..  T.t 
'be,  bad  been  exan.ln«l  by  tb.  banka  own  solicitor  and  pronounc.4  perfect. 

m 


SECl'RITY  AND  SF.CURITIES  IN  GENERAL.  ,95 

.»■  r.ioic,  cimltrli  and  nrrcliand  ir  can.     So  tlirn    _l.il.i  .1. 
pnrchmrnt  o,  other  docomrnl  „f  .„„,1,,  1,„  Z(,  1„  iJl     '\"'*  "■.• 

brcn  made  away  will,.     True  it  I.     hat  fl,!.  I  .^  ""■'  ''"• 

r..rd  In  the  .ifape  of  .inZnt  Lnalt    1  T"""^"  "  "'^•'"  "''- 

Bknbtolint  Ldani. 

The  grntral  queation  of  arcurity  ia  one  that  h..  ^  ..ji.l 

with  the  banker'.  bnainrM  that  it  „  dtalr  ble  ,0  I       /        «  """"'ion 

elcarne..  all  that  appertain,  to  it.     iri.^w.1    ,,1/     ."^  ""J"  '"""* 

.!  prineipl .  .hat  whT.  man  allow,  iiol^  To''  .:  t  ^  „'f"hi.Tn:; 

.sf»oti„„  „„,  in  the  receipt  of  i„tc„.t,  bn,  i„"o"g  ^T!"  "'^  '"•  "'- 

Fnni»L  Odirahtu. 

By  far  the  mort  common  of  .11  form,  of  bMiking  .ecurity  1.  U,.t  „f 

penonal  g„a,.nt«.     That  there  .hould  be  two  n.m*,Tl.«t   to  !^e!! 

biU^u  a  banking  axiom,  and,  in  .he  ...e  of  trade  bili;,"l   '.TJ:nZ7t 

iaon.r  Irat  to  nealy  ^rVth^S      i„  J!!?,I2?  I"    '■»"•    "'    'hi'    «1«".    vl...    S 
«  matter  of  6u,i„„,.  (Se.  Math™  »K"*"7       "  """  ""  •™™itt>o..  u  punlr 


196 


BANKING    AND    COMMERCE. 


course;  for  such  billi  arise  from  a  transaction  between  two  parties,  both 
of  whose  names  are  on  the  document.  Hence  every  trade  bill  would  be 
clnssifii'd  ns  a  sccurrfl  trnnsnction."' 

But  a  banker  will  not,  as  a  rule,  deal  with  trade  bills  long  before 
finding  out  that  security,  so  called,  does  not  necessarily  make  secure.  lo 
estioiating  the  value  of  trade  bills  it  is  customary  to  use  the  phrase,  are 
the  makers  or  promisers  good  for  the  amount — a  phrase  which  primarily 
means,  have  they  money  or  available  resources  enough  to  pay  the  bill. 
This  is  the  commercial  sense  of  the  word  good;  but  the  primary  meaning 
of  the  word,  as  every  one  knows,  is  a  moral  one.  It  has  to  do  with  char- 
acter, not  money.  The  question  therefore  is  one  of  morality  also,  and 
Involves  the  consideration  not  only  whether  the  maker  is  able,  but 
whether  he  is  willing.  In  looking  at  a  certain  name  a  banker  therefore 
considers  not  alone  tlie  n'sotirrt-s  of  the  pnrly.  but  his  clinractcr  also,  and 
from  this  forms  his  conclusion,  whether  payment  of  that  particular  bill 
may  be  relied  upon.  But  this  is  not  all.  A  trade  bill  is  never  brought 
to  the  banker  by  the  maker;  and  in  tliia  there  is  an  essential  difference 
between  a  trade  bill  and  an  endorsed  loan  bill.  In  the  latter  case  the 
maker  invariably  brings  it.  But  the  trade  bill  is  brought  by  the  endorser; 
the  man  who  sold  the  goods. 

These  points  have  been  brought  to  the  reader's  attention  in  other 
chapters  and  need  not  be  enlarged  upon  here,  further  than  to  say  that 
the  banker  in  discounting  a  trade  bill  looks,  primarily,  for  his  security  to 
his  own  customer,  the  man  who  brings  it  to  him.  And  in  so  doing  he  has 
an  assurance,  with  regard  to  the  other  name,  that  of  the  maker  or  ac- 
ceptor of  the  bill,  for  before  he  got  the  bill  at  all  the  seller  of  the  goods 
must  have  exercised  his  j  udgment  and  concluded  that  the  buyer  was  able 
to  pay  for  them.  The  banker,  therefore,  with  regard  to  such  bills,  exer- 
cises a  double  mental  operation  and  considers,  first,  whether  the  maker 
can  and  will  pay  the  bill,  and  also  whether  his  customer  can  and 
will  in  case  the  maker  does  not.  So  important  has  this  last  con- 
sideration become,  that  in  nearly  all  well  governed  banks  the  rule  pre- 
vails to  continue  discounting  for  no  man  who  has  not  proved  himself  able 
and  willing  to  take  up  such  bills  at  once,  in  case  they  are  dishonorcti. 
A  customer  who  fails  to  do  this  is  speedily  made  aware  that  his  account  is 
undesirable. 

But  the  question  of  security  by  endorsement  arises  most  frequently 

G4  There  Is  Indeed  a  mode  of  dealing  with  trade  bills,  In  large  financial  cpn- 
treo  known  as  "buying  and  discounting  bills  without  recourse,"  that  Is,  whore 
the  "banker  relinquishes  the  right  to  call  upon  the  seller  of  the  bill,  and  under- 
takes to  rety,  solely,  on  the  maker.  The  seller  of  such  a  bill.  In  endorsing,  adds 
the  words  "without  recourse."  meaning  without  recourse  to  him.  The  bill  then 
becomes  a  one  name  blU.  and  naturally  a  higher  price  Is  demanded  for  cashing 
It  Some  merchants  systematically  conduct  their  discounting  business  on  this 
principle,  and  are  willing  to  pay  much  heavier  charges  for  discount  in  consider- 
ation of  being  relieved  of  rwponslblllty  for  their  customers*  bills.  There  are 
blU-broklng  firms  and  companies  who  cuUlvate  this  class  of  business,  making  a 
•peclalty  of  it,  and  taking  meana  to  acquire  the  wide  range  of  Information  neoes- 
Mry  to  do  U  safely. 


SlitUIUTY  AMI  SECURITIES  IN   (iENEHAL.  l!(7 

with  rog.rd  to  jt,.l  ,„ch  advance,  of  a.o„ey  by  a  banker  to  a  eu.tomer. 
A  man  in  b.«,n«s,  needing  .npplie,  „f  ™„„,y  f„,  hi,  operation,,  will 
frequently  preva.I  upon  .ome  neighbor,  relative  or  friend  to  beeome  hi. 
surely;  or,  to  apeak  in  eoramon  phrase,  to  endorse  hi,  paper.  Sneh  an 
endor,eraenl  i,  of  an  entirely  different  eharaeter  from  that  of  the  owne" 
of  a  note  or  bill,  who  pa„e,  hi,  title  on  to  a  aneeeeding  holder  for  value 
bv  endor„ng  it.  The  endor.eme„,  now  referred  to  i.  of  the  nature  of  . 
SLrety  or  guarantee. 

e„„f  "•''  "Tit  '°,""'  '"'"'  '°  ^  ""•'^'"•''  "■  '"''■  '■"'iorsement,  much 
eonf„„on  of  thought  e,i,t,.  A  banker  who  lends  ten  thousand  dollar, 
on  the  endorsement  of  another  man,  reputed  to  be  worth  twenty  thou- 

leTi""'.1  /r""  '°   "  r-'r'"'''"*  "  '"y  '"f-^  "P-"""";  b"'  experience 
teaehe,  that  he  m.ght  be  leaning  upon  a  broken   reed.     The    'ndoraer 
nnght  be  ,urely  for  other  per,on,  al,o,  and  the  aggregate  amount  of 
these  obligation,  might  be  far  beyond  his  means  of  meeting  them.     Such 
ease,  have  arisen  and  have  opened  the  eye,,  more  than  once,  of  confiding 
banker,   and  shown  that  before  lending  money  on  the  strength  of  a  ee* 
ta,„  endorser  inquirie,  should  have  been  made  whether  he  wa,  not  in- 
volved m  the  success  or  failure  of  half  a  do^en  commercial  enterprise, 
over  which  he  could  exercise  no  effective  control.     But,  beside,  this,  there 
.s  another  very  important  eonaideration.     An  endorser  becoming  surety 
for  ten  thousand  dollar,,  might  be  utterly  unable  to  pav  as  much,  even 
.1  he  had  a  real  surplus  of  twenty  thousand,  without  winding  up  his  own 
busines,      Th>,  surplus  might  consist  in  land,  buildings  and  maehinerv 
on  which  the  very  existence  of  hi,  own  bu,incs,  depended.     And  it  might 
be,  and  probably  would  be,  impcible  for  him  to  diminish  hi,  own  capital 
by  the  sum  necessary  to  pay  the  amount  he  endor,rd,  without  ruining  hi, 
own  credit.     In  thi,  instance  the  banker  would  almost  eertainlv  be  con- 
fronted, in  ea,c  of  need,  with  a  propowl  from  the  endor,er  to  releaae 
lum,  on  payment  of  only  a  portion  of  what  he  had  endorsed.     If  he  re- 
fused, and  demanded  what  wa,  due,  he  might  find  himself  the  plaintiff 
.n  a  vexatious  lawsuit,  and  only  obtain  judgmint  after  long  delav,  by 
which  tune  the  affair,  of  the  endorser  might  be  put  into  such  a  shape  that 
to  collect  the  debt  would  be  impossible. 

The  banker,  in  considering  an  endorsement,  will  do  well  to  remem- 
ber that  what  he  want,  from  the  endorser  is  assurance  of  repavment  of 
the  Itme  promwrrf,— time  Wing  of  the  essence  of  the  value  of  the  ,ecu- 

f'''.u  .,.""'"  '"."'■'°"  ""'''•^"  "■'<■"'"  "«•  ••ndo'ser  i,  in  such  a  posi- 
tion that  he  could  pay  the  amount  n-Jea  rallej  „p„n  without  embarrass- 
ment. Many  a  man  is  in  a  position  at  all  time,  to  meet  hi,  own 
engagements  who  would  be  seriously  embarrassed  to  pav  the  debt,  of 
another  person.  It  is  sometimes  said  by  a  borrower,  to  a  proposed  en- 
dorser, that  it  is  a  mere  malle,  of  form,  that  he,  the  borrower,  will  be 
•lire  to  pay  the  note  at  maturity.  And  not  a  few  endorsers  have  been 
Incautious  enough  to  belicyc  it,  finding  out  to  their  cost  that  to  guarantee 
another  man's  debt  is  no  mere  matter  of  form,  but  a  very  solid  reality. 


198 


BANKING    AXD    COMMERCE. 


Vabiocs  Clmmi  of  EHDOnniu. 
There  are  rarioua  classea  of  endorsers,  as  there  are  of  borrower!. 
There  are  endorsers  who  treat  the  matter  so  lightly  that  they  will  en- 
dorse for  any  amount,  and  never  think  of  keeping  a  record  of  their  re- 
sponsibilities. These  are  a  class  for  a  banker  to  avoid.  On  the  other 
hand,  there  are  endorsers  who  are  keenly  alive  to  the  responsiblUty  Ihey 
undertake,  who  consider  carefully,  and  insist  on  knowing  accurately  the 
position  of  the  borrower  before  undertaking  that  he  shall  pay  a  certain 
amount  of  money  on  a  certain  day.  A  prudent  endorser  will  lake  means 
to  have  an  efficient  oversight  of  the  borrower's  business  so  long  as  the 
obligation  endures;  considerlnjt,  very  properly,  that  his  guarantee  gives 
him  a  right  to  this  position.  An  endorser  of  this  kind  is  esteemed,  and 
very  properly  so,  a  more  valuable  one  than  another  of  much  larger  means 
who  would  neglect  such  precautions,  especially  if  he  has  had  more  eipe- 
rience  in  business  than  the  borrower  and  is  able  to  give  him  valuable 
hints  as  to  his  business.  Thus  a  father's  endorsement  for  a  son  just 
commencing  business  is  of  a  particularly  valuable  kind,  or  that  of  the 
senior  partner  of  a  firm,  who,  after  retiring,  consents  to  guarantee  a  cer- 
tain amount  of  their  liabilities. 

There  is  another  class  of  endorsers  that  used  to  be  much  more  com- 
mon than  at  present;  namely,  the  profeuional  endorser,  who  is  known 
in  the  community  as  such,  and  endorses  or  guarantees  for  a  commiasion. 
Such  men,  generally,  have  some  capital  at  command,  but  the  value  of 
their  endorsement  largely  depends  on  the  prudence  with  which  they  carry 
on  their  business.     A  prudent  endorser  of  this  class  will  always  scruti- 
nise carefully  the  position  and  character  of  the  borrower.     He  will  make 
accurate  record  of  his  guarantees,  as  if  they  were  his  own  promissory 
notes.     And  he  will  take  care  never  to  allow  his  name  to  remain  in  de- 
fault.    The  endorsement  of  such  a  man,  so  long  as  he  is  commercially 
"good,"  wiU  come  to  have  a  peculiar  value  in  a  banker's  eyes,  as  being 
almost  equivalent  to  a  certificate  that  the  borrower  is  both  able  and  will- 
ing to  pay  his  debts.     This  class  of  man,  however,  is  rapidly  disap- 
pearing. 1      *i.  t 
There  is  another  class  of  endorsements  to  be  considered;  namely,  that 
of  more  persons  than  one  on  the  same  note.     A  loan  will  sometimes  be 
proposed  to  a  banker,  generally  in  connection  with  some  public  enter- 
prise, in  which  the  notes  are  to  be  endorsed  by  four  or  five  individuals. 
This  class  of  endorsements,  however,  often  proves  very  unsatisfactory, 
for  although  each  of  the  endorsers  is  responsible  for  the  whole  amount 
of  the  note,  it  rarely  happens  that  any  one  of  them  is  willing  to  pay  the 
whole  amount.     He  will  come  to  a  banker  and  offer  to  pay  his  share  and 
request  a  discharge,  which,  of  course,  the  banker  will  not  grant.     Con- 
sultations then  follow  between  the  parties  as  to  how  the  obligation  is  to 
h-  met,  in  which  one  will  offer  to  do  this,  and  another  that,  hut  seldom 
coming  to  an  agreement  satisfactory  to  the  banker.     Not  infrequently 


SECURITY  AND  SECURITIES  IS  GENERAL.  199 

Jhcy  quarrel  among  themsdvcj,  each  one  of  them  declaring  that  he  will 
fight  to  the  last  in  resisting  payment.  The  banker  then  finds  himself 
involved  in  half  a  doien  lawsuits,  and  it  will  go  hard  if  some  clever  law- 
yer, employed  by  one  of  the  parlies,  does  not  find  a  loophole  for  evasion, 
or  delay,  owing  to  some  peculiarities  in  the  case,  possibly  suggested  by 
false  swearing  or  confused  testimony.  We  know  how  a  clever  counsel 
can  confuse  a  witness  so  much  as  to  get  him  to  admit  almost  anvthing, 
and  a  banker  in  the  witness-box  is  just  as  liable  as  other  people'  to  be 
wheedled  or  bullied  into  admissions  of  a  damaging  nature,  such  as  may 
be  almost  fatal  to  his  case. 

There  is  another  consideration  with  regard  to  these  multiple  endorse- 
ments ;  namely,  that  by  law  each  endorser  on  a  bill  has  recourse  upon  the 
preceding  one,  this  being  founded  upon  the  practice  of  passing  notes 
from  one  man  of  business  to  another  for  a  valuable  consideration,  as  used 
to  be  common  in  the  business  world.  In  this  case  it  is  perfectly  equitable 
for  the  last  endorser  to  call  upon  the  preceding  one  to  pay  him,  and  so 
on,  until  the  maker  or  acceptor  is  reached.  This  law  prevails  even  in 
such  cases  as  have  been  referred  to,  although  the  circumstances  are  en- 
tirely dilTerent.  There  is  no  method  under  our  law  of  bills  of  exchange 
by  which  a  number  of  men  can  endorse  a  note,  one  after  another,  so  as  to 
be  jointly  and  severally  liable,  and  avoid  recourse  upon  previous  names. 
It  is  therefore  belter  that  the  persons  proposing  to  become  security 
should  become  joint  and  several  promaon,  or  joint  and  several  guaran- 
tors on  a  separate  instrument. 

DimniNcis  Betwiin  Endorsimint  akd  Guarahtie. 

This  leads  to  the  question  of  the  difference  between  an  endorsement 
and  a  document  of  guarantee:  respecting  which  it  is  well  to  note  some 
points  for  consideration. 

The  first  point  is  that  endorsements  require  to  be  on  each  separate 
note,  and  thai  when  there  are  seieral  endorsers  for  the  same  debtor  on 
separate  notes,  and  difficulties  arise  in  the  circumstances  of  the  maker, 
each  endorser  can  claim  the  right  out  of  any  security  realized  to  have 
his  notes  paid  in  the  order  in  which  they  become  due.  This  operates,  in 
some  cases,  very  much  to  the  creditor's  disadvantage.  Moreover,  if  the 
time  for  a  loan  is  long,  as  it  requires  to  be  in  some  lines  of  business, 
notes  require  to  be  renewed,  failing  which,  Ihcy  lie  under  protest  in  the 
banker's  hands.  Now,  the  endorser  may  not  be  at  hand;  he  may  be,  in 
these  times  of  travel,  at  a  considerable  distance;  or  he  may,  in  some 
cases,  refuse  to  endorse  a  renewal,  and  insist  on  the  banker  forcing  pay- 
ment. If  the  banker  refuses,  as  being  contrary  to  agreement,  the  en- 
dorser may  pay  the  note  himself,  and  sue  the  maker,  to  the  great  damage 
of  his  credit,  and  with  a  danger  of  bringing  about  a  stoppage  of  his  busi- 
ness. 

A   guarantee,   however,  obviates   all   these   difficulties.     But   such   > 


.       i:       ! 


eoo 


BANKING    AND    COMMERCE. 


docnnnent  requires  to  be  dra\.  n  with  exceeding  care — so  as  to  avoid  brinp 
ing  the  banker  himself  under  obligations  upon  which  a  defense  might  be 
bung  in  case  of  suit.  There  is  scarcely  any  instrument  capable  of  giving 
rise  to  so  many  conflicting  points  as  a  loosely  drawn  guarantee.  For 
this  reason  the  banker  will  bring  to  his  aid  the  best  legal  talent  available 
to  prepare  a  proper  form  of  instrument  applicable  to  general  uses.  Thi« 
guarantee  should  provide  for  renewals,  changes  of  security,  additional 
advances,  partial  payments  and  other  contin^ncies,  and  in  most  cases 
should  hind  the  guarantor  to  pay  a  specific  sum  whenever  called  upon. 

But  a  gua.'antee  mhf  be  taken  for  a  running  account,  and  made  to 
cover  the  balance  due  on  such  an  account,  whenever  it  may  be  struck.  In 
some  cases,  indeed,  where  an  account  is  a  complicated  one,  and  consists 
partly  of  trade  bills  and  partly  of  securities  of  various  classes,  a  guaran- 
tee may  be  taken  for  the  final  balance  remaining  after  other  securities 
are  cxliausted.  This  word  exhausted,  however,  in  a  legal  document,  re- 
quires to  be  very  carefully  defined.  But  one  thing  a  banker  needs  to  be 
particularly  careful  about,  viz.,  not  to  introduce  special  conditions,  of 
bis  own  motion,  into  a  form  of  guarantee  which  has  been  prepared  by 
bit  solicitor.  He  will  always  find  it  prudent  to  let  his  solicitor  insert  the 
special  conditions  also. 

Of  the  two  forms  of  personal  security,  therefore,  an  endorsement  is 
the  most  simple  and  the  least  open  to  misconstruction,  and  affords  the 
least  opening  for  a  vexatious  defense  in  case  of  a  suit.  And  vhen  the 
note  guaranteed  is  a  single  transaction,  and  not  a  part  of  a  general  ar- 
rangement for  advances,  it  is  the  most  advisable  form  of  personal  secu- 
rity that  can  be  taken. 

But  there  is  this  to  be  said,  that  a  guarantee  is  always  witnened,  and 
is  generally  signed  in  the  office  of  the  bank,  or  the  bank's  attorney;  while 
it  not  infrequently  happens  that  the  maker  of  an  endorsed  note  brings  it 
Ic  the  hnnk  for  discount,  and  expects  it  to  be  passed  without  further  cere- 
mony. But  a  prudent  hanker  «"'"  inrnriabl^  require  the  endoraer  to  he 
preaent  when  he  a^ftxea  hit  signature,  especially  when  the  amount  is  large. 
For  an  endorsement  may  be  forged;  or,  even  if  the  original  signature  is 
genuine,  the  renewal  may  be  forged.  An  endorsement  of  a  loan  bill,  in 
fact,  as  it  is  a  document  of  guarantee,  should  be  treated  with  as  much 
care  and  ceremony  as  if  it  were  a  deed  to  be  signed,  sealed,  and  delivered 
by  the  partf  to  it. 

Loans  Sixured  by  Mkrchandise. 

It  is  a  fundamental  ax.jm  in  banking  that  all  discount  loans  for  com- 
mercial firms  should  rest  on,  or  be  represented  by,  salable  goods,  on 
which  no  other  person  has  a  claim.  Exceptions  there  are,  as  have  been 
noted,  but  the  exceptions  are  few.  It  is  here  that  banking  differs  from 
mere  money-lending;  its  loans  should  be  founded,  not  simply  on  valuable 
property  or  even  valuable  goods,  but  on  goods  that  are  salable,  that  have 


SECURITY  AND  SECURITIES  IN  GENERAL.  zoi 

>  ™r«-rt  ».!„,  th.t  .re  dealt  In  brtWMn  a.n  .nd  nun,  and  brtween 
conntry  and  country  I„  „,he,  word.,  .*nkiko  I.  th.  hakdma.d  or 
C0M1..BC.  But  although  th«e  thing,  are  .o,  it  i.  not  aU  banking  di.- 
counl,  or  loan,  that  eon.titule  a  claim  on  any  particular  good..  It  can- 
not he  ...d,  for  cample,  that  .  trade  bill  i.  reprcenled  by  .uch  and  .ucb 
loU  of  d'y  good.,  pocerie.  or  hardware  in  the  .tore  of  the  per.on  who 
ha.  made  the  bill.  They  are  not  earmarked  and  .et  aaide  for  th.t  pur- 
^"-  \f "!  ""•  '""«''"■  ''•"l'i''«  lo>n.  that  do  ret  on  good,  that  .re 
•peciflcnlly  de.ign..;ed  .nd  .et  aside  for  the  purpose. 

The  .ecority  for  thi.  cla>.  of  loan.  h..  now  to  be  con.idered. 

The  aimplct  .nd  moat  natural  form  of  lending  money  on  the  .ecu- 
r.ty  of  good.  i.  that  of  the  pa«n6roier.  .o  clled-a  very  mi.Ie.ding 
namc^for  hi.  re.l  bu.ine..  i.  to  lend  money  on  good,  th.t  .re  left  in 
hi.  po..e.sion.  It  i.  a  mo.t  .imple  bu.ine..,  requiring  Marcely  any 
capacity  to  carry  it  on,  e«ept  a  fair  judgment  a.  to  what  good,  will  ,ell 
for.  The  pawnbroker  doe.  not  rely  on  any  legal  document,  to  .ecure 
him  and  he  care,  nothing  .bout  the  .t.nding  of  hi.  cu.tomer.  He  ha. 
the  go^.  thcmwlve.,  and  it  u  hi.  own  lookout  if  he  doe.  not  t.ke  proper 
c.re  of  them.     The  p.wnbroker'.  lo.n>  .re,  howcTer,  not  commercij. 

V  °  "','"' JV  ""'"  '""  ^'''"«°  "'  I-i''"Pool,  would  deposit  .  thouMnd 
barrel,  of  flour  with  a  pawnbroker  .nd  get  .n  .dv.nce  on  them.  Such 
loan.  ,re  p.rt  of  the  operations  of  commerce,  .nd  would  be  applied  for 
to  a  banker.  '^'^ 

Now,  a.  a  pawnbroker  keeps  a  .hop  or  a  warehouse  in  which  to  store 
the  good,  he  has  lent  money  upon,  il  would  naturally  be  supposed  to  ap- 
pertain to  a  banker's  buaines.  to  have  a  warehou.c,  wharf  or  yard  with 
convenience,  for  the  storage  of  various  clasK.  of  good,  owned  by  hi. 
curtomer..  Thi.  would  strike  ,nyone  as  the  most  reasonable,  natural, 
not  to  .ay  .afe,  mode  of  transacting  bu.ine...  "Bring  me  your  good.," 
the  banker  might  .ay,  "and  I  will  lend  you  money  upon  them."  In  .ome 
parts  of  the  world  thi.  is  actually  the  mode  on  which  banking  loan,  on 
good,  are  made.  The  bank  own.  as  a  part  of  it.  machinery  (k>  to  .peak) 
a  commodious  warehouse,  yard  or  wharf,  in  which  it  require,  all  good, 
to  be  depoailed  on  which  advances  are  made.  These  are,  of  courae,  in 
charge  of  it.  own  officer.,  and  the  bank  attend,  to  Insurance  at  the  charge 
of  the  borower;  charging  him  also,  direcUy  or  indirectly,  with  the 
.storaffc,"^ 

That  this  tends  in  a  remarkable  degree  to  the  safety  of  such  louu 
goes  without  .aying.  The  only  danger  to  the  banker  in  that  case  is  that 
he  may  overestimate  the  value  of  the  goods,  or  forget  to  take  into  account 
the  chance  of  decline. 

This  mode  of  procedure,  however  rational  it  may  seem,  ha.  never 
been  adopted  by  bankers  generally.     The  banker,  of  Great  BriUin,  gen- 

I.  IB^  T^l^T^J^'^  nf  uvr„,.,„j.  ,„„j„,„  |„  b„„„„.  „„  ,^„       ,„^, 

«„„!  T^      J    "*"'  ""'•I'"™™  In  aiBtfrmt  part,  of  th.  E/npl™.  l„  which  u« 

■tor«a  an  aoodi  that  are  advanced  iioor. 


4 


r.; 


20!  BANKING    AND    COMMERCE. 

er^llv  .poking,  know  nothing  of  it:«»  neither  do  those  of  the  I'nlted 
Stmtei  or  Can>d>.  They  keep  no  itorehoMei  or  yardi  In  which  to  plue 
good!  they  h«ve  loaned  upon;  though  daubtlen  m.ny  of  them  have  wUhed 
they  had  done  m  when  they  have  been  deceived  by  document,  purporting 
to  repre.ciil  good..  All  the  loan,  in  their  book,  .tated  to  be  on  goodi 
re.t  in  fact  upon  nothing  but  fitct,  of  paper-  or  rather  let  u.  .ay,  on 
what  i.  written  on  piece,  of  paper.  Ju.t  a.  a.i  American  Treaiury  cei- 
UBcate  for  five  thouaand  dollar,  repreaent.  that  amount  of  actual  coin 
In  iU  vaulU,  M  are  the.e  piece,  of  paper  pre.umed  to  represent  .t  many 
ton.  of  iron,  Ug.  of  wool,  barrel,  of  fiour,  or  bu.hel.  of  wheat.  And, 
to  .ay  the  truth,  there  are  .uch  document,  which  carry  almoat  a.  much 
auurance  with  regard  to  good.  a.  the  gold  certificate,  of  the  American 
Trea.ury  do  with  regard  to  money.  When  the  officer,  of  a  well-known 
warehousing  or  dock  company  iMue  a  certificate  that  they  have  received 
a  thousand  barrel,  of  «our  from  John  Smith  or  a  thousand  bale,  of  cot- 
ton from  MacGregor  &  Co.,  and  that  they  wiU  deliver  the  .ame  on  pro- 
duction of  the  certificate  duly  endoraed,  a  banker  will  feel  almoat  a.  much 
assurance  in  advancing  on  such  a  document  a.  if  he  had  the  good,  in  hi. 
own  possesion."^ 

Thi.  i.  more  e.pecially  the  caK  if  »uch  document,  are  regiatered,  a. 
they  are  in  Chicago  and  other  grain  warehouaing  centre,  of  the  United 
Slate..  The  truth  1.  that  the  ualae  of  the  document  i»  in  the  retfOfm- 
bilit)  of  the  port,  iwatag  i<.  Thi.  i.  a  principle  that  i.  often  forgotten, 
and  it  la  here  repeated,  that  it  may  be  better  remembered.  The  value  of 
the  document  !.  in  the  re.pon.ibility  of  the  party  i..uing  it.  There  are 
varlou.  grade,  of  .uch  document,  a.  there  are  variou.  grade,  of  bill,  and 
promiMory  note.,  the  quction  alway.  being,  in  the  fir.t  place,  will  the 
i..uer  of  .uch  a  receipt  .ign  the  document  unlcM  he  ha.  the  good.  In 

M  It  ha.,  however.  Mm.tln.-  happmrf that  to  eontervatlve  areal  Brltalnjex- 

cplloiuU  neaaure.  are  taken  with  reiara  to  property  aavai.o«J  upon.  A  l""* 
in  the  ■•Bl.cl.  country  ...  at  on.  tlm.  In  the  •'»>''' "'•'''■J'.'f""' ,i?« 
•tored  in  a  certain  horrow.f.  own  yard,  or  In  the  yard  of  the  halt  '"""•";"; 
It  WB«  produced.  Thte  ou.Wmer  havlnl  once  removed  thiB  Iron  .0  advaneoa 
upon,  the  bank  adopted  the  plan  ot  l«»liit  a  .mall  are.  In  .ome  furnace  y«d. 
fencing  It  In.  pl.cln.  It  under  lock  and  key.  and  requlrln.  Iron  advanced  on  to  h. 
deposited   there.     This   plan   proved   effectual. 

«7  There  are,  however,  caeea  at  tlmaa  which  .hake   a   banker',    confidence  In 

""'TheTrlter  once  had  to  do  with  a  draft  secured  by  a  bill  of  ladlna  for  r>«d. 
.lr.«l  by  the  ehlppln.  officer  of  a  railway  elation  on  the  company  a  "•^.U'form. 
But  .uch  good,  were  never  delivered  at  the  d..tln»tlon  Indicated.  And  Inveetl. 
latlon  brouaht  out  the  fact  that  auch  mod.  were  never  received  at  the  .Utlon 
The  bank  contended  that  the  railway  company  «a.  liable  for  the  ««•  »' '"  "''" 
otncer  done  In  the  repilar  cour.e  ot  bu.lne...  Thi.  wa.  denied,  the  "nl""' 
c"mln,  that  they  were  only  liable  for  good,  they  had  «  "•"'  T"'"^*,  "J 
thi.  contention  wa.  upheld,  though  It  really  did  not  touch  the  J"  "',  ™"  f "'" 
w...  a  wron.  having  been  done  by  an  employee  of  the  company  '»  <"  °«4"^ 
«>u™  ot  hi.  duty,  who  I.  to  .uffer  for  the  wrong-th.  company  that  wnployed 
talm.  or  a  perfectly  Innocent  party?  .„,„.-   h,  hiiia 

Th.  dmtalon   I.   calculated   to  undermine  the  conBdenc.  entertained   In  bllU 
ot  lading  a.  eeourlty. 


SECURITY  AND  SECURITIES  IN  GENERAL. 


pOMCHion?  And,  ■rcondlr,  will  he  tnk  due  cnre  of  them  and  not  let 
them  go  except  to  the  righc  larty?  And,  if  he  fails  to  do  ci»her  of  theie 
thiiigx.  is  he  of  sufficiriit  -       oiisniiljly  to  make  hix  engagement  gooti?"' 

In  Canada  and  the  United  Statei  the  isauing  and  advancing  of  theie 
documenti  is  carefully  regulated  by  law;  the  object  being  to  facilitate 
bank  advances  on  the  great  staple  productions  of  the  country  and  so  to 
assist  in  that  great  annual  movement  upon  which  all  internal  commerce 
depends. 

This  law  of  warehouse  receipts,  let  it  be  borne  in  mind,  traverses  the 
law  of  chattel  mortgage  in  two  respects.  The  ordinary  law  is  tliat  a 
bank  cannot  make  a  new  advance  on  the  security  of  chattels ;  and  also,  if 
a  chattel  mortgage  is  given  to  secure  an  existing  debt,  it  must  he  entered 
in  a  public  registry  within  a  certain  number  of  days.  But  the  warehouse 
receipt  law  enables  new  advances  to  be  made  on  goods,  and  gives  the 
lender  a  valid  title  to  them  against  all  comers,  subject  to  certain  restric- 
tions. It  also  dispenses  with  the  necessity  of  registration,  though  it  i$ 
often  contended  that  it  would  be  better  in  all  cases  if  registration  were 
required.  Under  this  law  bankers  can  advance  on  documents  in  the  same 
manner  that  they  discount  bills,  looking  to  the  names  of  the  parties  and 
considering  also  the  genuineness  of  the  document  itself. 

6'i  There  is  thia  dltTerence,  between  a  hanker  adv^inclng  on  goods  In  his 
own  poM«sBlon  and  advanclnc  on  a  warehouse  receipt,  that  the  document  may  tM 
forged.  The  certificate  of  reglatratlon  may  be  forged  alHo.  and  the  banker  may 
be  deluding  himaelf  by  an  Imagined  security  of  gooda.  while  such  goodi  have  no 
existence  whatever,  or  may  have  been  pledged  to  another  party  on  a  genuln* 
document. 


<i 


CHAPTER  XXri. 

SEOUBiry  AND  SEOURITIEB— Continued. 

8«cu«iTV  BY  AK  Owner'i    Wah.hodii    RiciiPT— Baii..«    Kecipti- 
BiLn  or  Ladino— SicuKlTV  ON  BiAL  Propirtv. 

IN  the  Inst  chapter  WM  coiuidercd  the  seeurity  .Ifordfd  for  adv»nce« 
on  good,  by  mean,  of  a  formal  doeun.rnt  acknowlfdning  receipt 
of  them  and  imdrrtakinn  to  deliver  them  when  called  for,  on  inr- 
render  of  the  document.  The  ledislation  respecting  these  dociimcnt., 
.nd  the  title  tlHV  conveyed,  was  also  adverted  to.  In  all  these  two 
persons  were  concrned-the  person  who  deposited  the  goods  and  the 
per>on  who  undertook  to  lake  core  of  Ihcm,  the  loiter  being  a  warehoose- 
kteper,  or  wharfinger,  by  occupation.  Bnl  in  process  of  time,  and  what 
may  be  called  the  evolution  of  business,  it  came  about  that  another  class 
of  receipts  or  certificates  were  proposed  as  security.  The  borrower,  in 
small  towns  especially,  often  having  a  store,  warehouse  or  yard  o.  his 
own,  the  question  was  asked,  why  should  he  not  be  the  ..rehouseraau  of 
his  own  goods,  and  give  his  own  certificate  of  possession,  borrowing 
upon  that?  These  receipt,  were  warehouse  receipt,  nndoobtedly,  and 
the  fraudulent  issuing  of  them,  or  making  away  with  the  goods  would 
be  equallv  an  offence  against  the  law.  It  thus  came  about  that  banker, 
in  places  where  no  professional  warehouse-keepers  were  to  be  found 
became  willing  to  advance  money  on  this  kind  of  document. 

The  law  for  .ome  time,  however,  did  not  recognise  them  as  convey- 
ing title  in  the  same  manner  as  the  former  document,  did.  But  in  time 
cpeeial  clauses  were  added  to  the  Banking  .\cl  legalising  this  class  of 
receipts,  but  defining  very  strictly  the  kind  of  goods  '"  »'"f  '"f 
certificates  could  be  given.  Strict  provision  was  also  made  that  the 
document  should  1«  handed  to  the  banker  at  the  time  an  advance  wa. 
made,  or  that  the  banker  should  hold  a  written  engagement  from  his 
customer  to  lodge  such  a  document  with  him.  In  every  other  respect  the 
provision,  relating  to  the  older  elas.es  of  receipts  were  made  applicable 

to  these  receipts.  ...  ,.  _  .r 

It  is  evident,  that  these  restrictions  have  in  view  the  prevention  of 
what  might  prove  to  be  a  great  .bu.e,  vis.,  thai  a  dealer  in  imported  or 
manufactured  good.- such  as  dry  goods,  groceries,  etc  •l)"""  h«J  '' 
in  his  power,  while  such  go  ds  are  still  unpaid  for,  and  without  remov- 
ing them  from  hi.  .helve.,  to  pledge  them  for  advances,  thus  making  it 
casv  to  deceive  or  defraud  hi.  creditors.  These  creditor,  under  such 
circumstances,  would  find  that  the  .toek  in  trade  ""r'''''''  ''l".  !!i., 
for  payment  had  been  .o  pledged  a.  to  give  a  barfi  a  title  to  it,  thu,  c^lrt- 
tog  a  preference  of  .  very  inequitable  kind.     The  Act  therefore,  very 


SKCUnJTY  AND  SECURITIES  IN   GEXERAI,. 


properlj  limited  the  clan  of  goods  that  could  be  pledged  by  the  owner's 
limple  certificate  to  luch  artlclei  of  merchindlie  as  are  Invarlablj 
bought  for  caih,  via.,  all  kinds  of  agricultura'  and  natural  productions. 
There  could  then  he  no  conflict  of  claim  betwen  one  class  of  creditors 
and  another. 

These  documents  being  thus  legallseJ,  gradually  came  to  have,  la 
the  minds  of  Inexperienced  bankers,  the  satue  veight  and  consideration 
that  attached  to  the  certificates  of  a  professional  warehouseman.  And 
in  the  consideration  of  the  various  classes  of  loans  and  discounts  In 
their  books  they  would  describe  these  as  "secured"  and  place  them  In 
the  same  category  as  advances  secured  by  goods  stored  In  a  public  ware- 
house or  wharf. 

But  little  consideration  is  required  to  show  that  there  is  a  f  ndamental 
difference  between  them.  The  warehouse  receipt,  or  docih  warrant, 
properly  so  called,  is  the  receipt  of  a  person  who  has  no  interest  In  the 
goods  except  to  take  care  of  them,  and  deliver  them  In  good  order  when 
called  upon.  This  is  his  business.  For  this  service  he  receives  due  re- 
muneration, and  his  whole  reputation  and  standing  are  involved  In  per- 
forming the  duty  well.  He  Is  practically,  so  far  as  the  banker  is  con- 
cerned, in  the  position  of  a  guarantor  holding  speci6c  goods  with  which 
to  meet  his  obligation.  There  is  no  Inducement  to  him  to  give  a  certifi- 
cate unless  he  has  the  goods;  and  every  possible  Inducement  to  refuse 
to  give  them  up  except  to  the  banker  who  holds  his  pledge. 

These  safeguards,  however,  are  wholly  wanting  when  a  man  bor- 
rows money  on  his  own  pledge.  There  is  nothing,  except  a  borrower's 
honor,  to  prevent  his  uniting  out  a  certificate  before  he  has  the  goods 
in  possession,  or  for  a  larger  quantity  than  he  actually  has  in  store,  or 
for  goods  of  a  higher  brand  than  he  has  in  stock.  Even  If  a  banker 
takes  the  precaution  to  have  the  goods  examined,  it  is  next  to  impossible 
for  him  to  arrive  at  an  accurate  statement,  either  as  to  quantity  or 
value.  Then,  as  to  the  other  point  of  safe  custody  and  delivery,  it  is 
impossible  to  prevent  the  owner,  when  {n  possession,  from  taking  the 
goods  into  the  stock  which  is  being  manufactured,  and  selling  and  de- 
livering the  goods  produced.  Nay,  it  is  not  uncommon  for  a  banker  to 
give  nis  consent  to  this,  either  In  general  terms  or  specifically,  either 
verbally  or  In  writing,  so  that  an  underttanding  is  established,  or  sup- 
posed by  the  borrower  to  be  established,  such  as  can  be  pleaded  in 
court  against  a  charge  of  wrong-doing.  From  all  which  it  is  evident 
that  the  pledges  of  the  owner  of  goods  are  not  to  be  looked  on  in  the 
light  of  an  actual  security.  It  does  not  make  secure  in  the  manner 
that  intenention  of  a  third  party  does.  It  amounts,  in  reality,  only  to 
an  additional  promise  on  the  borrower's  part  Having  already  written 
a  promise  to  repay  a  certain  sum  of  money  on  a  certain  day,  he  adds 
to  it  a  promise  to  deliver  certain  goods  on  a  certain  day.  It  is  only  a 
promise  added  to  a  promise,  both  by  the  same  person,  and  not  an  en- 
gagement by  another  person. 


m 


M«  BANKING    AND    COMMERCE. 

Th.™  U  however,  thii  to  be  Mid,  tli«t  while  the  pledge  of  •  prom- 
^T«i'n  nr^kln,  ..«  .h..  .he  good.  P''"*"'  '"  f"^ 
iJU  the,  .«■  rep,e«ntod  to  be,  It  I.  .  ..rong  .ecnrl.y  when  tte  g«J. 
rTTch-lly  then.,  .nd  the  borrower  become.  .m.ble  to  p.y  ^  ^^ 
¥JrT  c«not  be  .el.cd  In  ludgmenl,  .nd  they  do  not  p...  «•  ."  ""«~J 
to  «.e  of  in.olvencv.  The  law  hold,  them  .trieOy  or  the  ^•^'■'^ 
S.  debt  «cured  by  then.  1.  p.ld.    But  he  mu.t  be  .We  to  P""' '"  »" 

rf  d.  put"*'*  'he  "'»*  •"«•«•  "f:"'""''.  '■':i"i5:fc«.  :««i 

.  nroner  w.rehouM  receipt  nor  »  borrower,  own  pledge  «"'•"«» 
«3»  tl.  debt  d„e  to  .  b.nker.  A  .peelflc  .»n.  of  ">°"'y  *•' "» 
r»  Identified  n„..t  be  lent  on  cerUln  .peclfie  good.  th.t  ..n  b.  Identl- 
ted:  othrrwi.c  the  .«nrlty  will  not  hold.  ^h.rMter 

There  1.,  however,  thi.  ..fegn.rd:  th.t  .  pMp  at  '"•  ''•"^"; 
,f  no  bon.  fide,  1.  ...bjeet  to  the  ..n,e  erimln.l  .«"■•"" '^^  f'*  ^ 
.  doeun>ent  i««ed  by  .  third  p.rty.  If  .  m.n  8»"  "'»»''"  •P''*^ 
on  good.  th.t  do  no.  c,i...  or  .re  no.  wh.t  "'  "P™"^,^^™  ^„g  ^ 
he  «po»e.  hinl.elf  to  .  erimin.l  pro.ecutlon.  And  '^j'*"  P'  "«  ' 
o!ed«  on  good.  th.t  .o.u.lly  «l.t,  he  remove,  the  good.  w»">out  «^e 
blnkfr-.  eoC  or  wi.hou.  .cooonting  for  .hem  he  1.  «l>»»y  P"^*^, 
S^h  1.  the  l.w:  .nd,  to  .  cerum  extent,  it  1.  effic«lo.i..  But  when  . 
frVL  in  e.p"rt.He  good,  beeome.  pre«ed,  M  he  «meUme.  m.y  ta 
'Xown  to  M.  b-nkerVbe  tomp....on  i.  very  gre.t  ,o  ,.U.  m^ey  b, 

-z7;^^;:Jyisc:sr^"3?^''^^^ 

Z  tb»t  he  m.y  be  •"-»  f -,.f  ^.^  ^^^^^  rXl^n'oTZ 
pie.  1.  enterrf  th.t  there  WM  «.  .«»er.<..A.g  ("»' *"«™"  ^"^ 

r.irbo^^:.nir^-^^^/p^^ 

„..r.in  them  from  i..«ing  f.Le  pledge.,  or  '™°;"|Xpre..rf  f^ 

"ecnrHv  h».  been  properly  token,  .he  pledge  w.11  hold  .he  good,  for 
'^±:l^r^fe^ptrr::.lrn■:f .  debt  ..oln^ly  scored 
hy  rp.-i«.m  of  1ii>  linWinc  the  borrower,  pl.-dne. 


SECURITY  AND  SECURITIES  IN  GENERAL. 


8or 


Bailki  RtcEirrf. 

In  the  cair  of  nil  good*  and  mrrchandiie  plrdgrd  to  ■  banker,  the 
tfane  romrfl  vhrn  Ihey  mnit  be  rrmnvrd;  and,  In  nM>drrn  buiincM,  the 
reiDOTal  will  be  rllher  to  a  ihip  nr  to  a  railroad.  Now,  daring  the 
prorcsi  of  niiioval  it  Ik  iiii)H)ii«ih1i>  thnt  th<-  arnirity  hit'ort-  incnIioiK  <| 
will  hold  the  ftnodi.  They  muit  be  released  from  the  warehouieman'f 
enstodjr,  and  until  they  arr  loaded  on  board  ihlp  ur  placed  In  custody 
of  a  raJway  company,  a  hiatus  nrcfsiarlly  nrtirs  in  which  there  li  no 
lecurlty  to  the  banker  at  all,  except  whnt  it  ftcncrnlly  known  ai  a 
"bailee  receipt."  Thi«  li  a  document  lomewhat  limilar  to  the  pledge 
which  hai  he^n  discuHSid,  and  ii  given  by  the  ownrr  of  the  goodi  during 
thf  time  they  are  in  transit.  In  this  document  the  ownrr  nrknowlrdges 
to  have  rictivrd  certain  sprrlfird  goods  for  shipment  by  rnil  nr  steamer, 
as  may  be;  constituting  himself  n  bailee  for  the  same,  nnd  rngagtng  to 
deliver  them  ns  directed.  A  breach  of  this  engagement  is  a  criminal 
offence  Upon  the  lodgment  of  such  a  bailment  with  the  banker,  the 
custom  is  to  surrender  the  warehouse  receipt,  to  be  exchanged,  after  ren- 
sonable  delay,  for  a  steamship  bill  of  lading — or  a  railway  receipt. 
When  a  banker  gets  either  of  these,  his  anxiety  is  generally  at  an  end, 
always  supposing  that  the  goods  are  worth  what  he  has  advanced  and 
that  the  document  it  genuine. 


Bills  of   Ladino  and  Railway  Rcciirrs. 

When  the  process  previously  described  has  issued  in  the  shipment 
of  goods  by  steamer,  the  captain  or  agent  slgin  that  important  docu- 
ment called  a  Bill  of  Lading,  making  the  ship  and  its  owners  respon- 
sible for  safe  carriage,  and  delivery  of  the  goods.  This  document 
insures  that  the  goods  are  on  their  way  to  a  definite  destination.  The 
owner  of  the  goods,  who  has  had  them  in  I^'s  own  charge,  for  a  time, 
now  draws  upon  a  purchaser  or  consignee  and  attaches  the  bill  of  lading 
to  the  draft  together  with  a  document  of  insura'ce;  the  law  giving  the 
banker  the  same  position  now  with  regard  to  the  goods  that  he  pre- 
viously had  as  the  holder  of  a  warehouse  receipt.  The  goods  on  that 
ship  are  his,  until  the  draft  is  paid,  and  tht  security  to  the  banker  on 
the   transaction   is  as  complete  as   a  mortgage  on   real   estate   is  to  a 

BtncK,  let  ua  aay.  of  iron  In  tlie  yard,  or  wool  In  the  warehous©,  such  as  may 
be.  at  any  time,  found  there.  But  thia  kind  of  pledge  will  not  sUnd  tlia  tsst 
of  a  lawsuit  or  an  aBUlgrnment.  unleas  It  can  be  Bhown  that  the  atoek  has  not 
been  changed  since  the  pledge  was  given.  The  law  doea.  however,  provld*  tbst 
when  wheat  la  changed  Into  flour,  logs  Into  lumber,  hides  Into  leather,  or  drasaid 
hogs  Into  pork,  the  pledge  shall  attach  to  the  manufactured  article.  If  the  saaae 
can  be  Identined,  which  Is  aometlmea  a  difficult  bualneaa-  But  b^nken  ha»* 
learned  to  take  care.  In  lending  money  upon  pledges  of  this  kind,  that  the  bor- 
rower  shall  have  no  other  creditors.  There  Is.  too.  a  method  of  lendlnc  upon 
ra»-  naterlHl.  which  l«  prevalent  In  the  lumber  trade,  namely,  that  the  toe* 
ai-  oranded  with  a  cerUln  mark,  by  which  they  are  Idintlfled  aa  tha  KooOs  that 
ha  .'6  been  advanced  upon. 


(M  BANKING   AND   COMMERCE. 

muT-lerdcr.     Tht  one  point  >  bonlur   iw   hu  lo   think   •>»<*  ^ 

wbothcr  th.  rxxi-  •«  "■>'*''  *•"  •"">""'  ■*'*'"  •**'"*'  'r":.n 

contldnstion,  bowofr,  li  d"lt  with  In  th.  ch.p«CT  on  trwlo  bllU,  of 

bill!  dr.wn  In  tttrllnij  monejr.  

H>Tln(  thui  conildfrrd  thf  v.rlou.  polnti  •rUinf  oat  of  Mcortty 
bT  endonmifnt  or  guownlM,  and  .Im  by  fMOtlly  of  (oodi,  cither  in 
«(■  or  (r.wi(..  It  ii  In  order  to  conilder  other  fonni  »t  Mcurlty  met 

with  In  bonklnd.  ,  u    j 

Of  IheM  reme  .re  met  with  In  the  Mllve  proiecutlon  of  builnMi, 

while  wme  eome  to  >  h.nher  when  .ddlllon.1  leeurlljr  li  demanded.   The 

Uit  will  be  treated  of  «r«l.  ....         , 

In  ordinary  loani  the  euitomer  olTera  aemritiP  at  the  Inception.     In 

real  eiUte  It  la  the  banker  tliat  Jimanili  It. 

Sit'imi'Tiii  RiiTiNo  OK  H«At  Err»Ta. 
The  bankln.  law  of  Canada  dlffcri  from  that  of  Great  BrlUln,  In 
that  It  prohibit!  loana  on  real  eatat.  lecurUjr.     A  banking  trjmiaetion 
cannot  be  inUicUd  bj  a  mortgage  on  real  property.     Former  dUaatroui 
operlence  led  to  tbU  prohibition,  and  more  recent  e.periencei  ta  Aoa- 
tralla,  of  a  much  more  dUtreaiing  character,  bate  ahown  the  wiidonl 
of  adhering  to  II.     One.  at  leaal,  of  the  greater  banki  of  Canada   after 
a  long  career  of  nuefolneia  to  the  Infant  community,  waa  «nally  forced 
t.  .uccumb  owing  to  the  fact  of  lla  reK,urce.  having  be...  e.   u  -^'"J^ 
•peak,  by  real  dale  tranaactlont.     In  the  day.  when  tbla  bank  wu 
dVtag  it.  mort  «rtlTC  buatae..,  the  loan  and  mortgage  companle.,  now 
io  common,  were   almoat  unknown.     Only  one  company,  an   Englah 
on6-"The  Tnat  uid  I«n  Company  of  Can«I."-cxiiled.    It  wa.  im- 
ponible,  however,  for  thi.  one  company  to  meet  the  need,  of  the  »jul 
rtretch  of  cou»try-thcn   known   a.   Upper   Canada-and   now  called 
OnUrio.     It  came  naturally  about,  therefore,  that  M  loan,  were  «- 
mured  for  clearing  land,  improWng  p-   -,erty,  and  building  .tore..  mllU 
Li  factorie.,  rcconrK  wa.  had  to  the  bank,  of  the  time;  and  to  thi. 
one  bwik  In  parUcular.     The  true  principle,  of  .ound  Unking  were 
UtUe  under.tood  in  thc.e  early  day..     If  a  man  wa.  p«..jc«.c.1  of  a 
piece  of  land,  large  or  .mall,  encumbered  or  unencumberec,  he  w..  con- 
.idered  to  be  an  eligible  cuatomer.    Many  of  the  loan.  n»dc  were  paid 
off  in  the  courK  of  event.,  but  large  number,  were  not,  and  remamed 
on  the  b«A'.  book,  year  after  year.  It  Ihn.  came  about  Aat  the  ma« 
of  undigMtcd  and  Indlgertible  «curiUe.   in  the  .hape  of   pronii.«.ry 
note,  of  red  ctate  owner.,  many  of  whom  were  domiciled  in  tl.c  b^ 
wood,  of  thoae  day.,  went   on  con.lantly    incrcaalng,    until    fte    b«k 
could  carry  them  no  longer,  and  fell  buried,  »  to  .peak,  under  .heir 
ruin.." 

~^Il  .«»•  hard  to  r«ll«.  and  mm'  f  a.«.ed  Incrrflbl.  to  on.  "»'  ''"l^ 
U,  !uh  th.  »r.y  hlotory  ,.  th.  countrv.  •;-■  •■"•  '".'''"h.nh.  wir««S 
Willi  a  rMUent  of  Toronto  who  r«n.mb.red  th«  llm.  whon  th.  wcai.  .ir..™ 


SECURITY  ANO  SECURITIES   IX   GENERAL. 


tirj 


Yrl,  Hcurltlfi  on  real  nUte  h«ve  their  use  to  ■  banker  whu  knowi 
bow  to  uae  them,  and  hare  Mved  tOMnj  an  account  from  degrnerating 
Into  a  bad  debt.  For  although  real  property  it  a  bad  foondatlon  for  a 
bankiBf  loan,  when  it  i*  the  onljr  fonndaUon,  It  la  a  itrong  I'lpport  to 
a  merer  tile  account  whoae  main  lecnrttj  ia  of  a  commercial  character. 
It  cnab..  a  banker  to  nurte  a  cnatomer  through  bad  timet  with  eon- 
fldenca  when  othcrwiae  he  would  be  obliged  to  allow  him  to  iuocnmb. 
Thli  la  ao  well  understood  in  England  that  a  lien  upon  a  coatomer's 
property  la  conaidered  one  of  a  banker'a  atrongeat  aafegnarda,  and  aa 
the  law  allowa  a  lien  to  be  created  by  the  simple  deposit  of  title  deeda 
with  a  memorandum  describing  the  purpose,  such  a  bold  npon  %  custom- 
er's  real  property  is  very  common.  In  Canada,  however,  no  such  castoa 
eilsts.  A  bankrr's  lien  cannot  be  established  without  a  regular  mort- 
gage, duly  registered,  and  this  n'ust  be  after  the  inception  of  a  loan, 
not  at  the  time. 

The  temi  Real  Estate,  though  definite  enough  in  law,  is  so  Indefinite 
in  fact  that  some  bankers  hare  almost  prohibited  the  use  of  It  in  corre- 
spondence with  their  branches.  >Vhen  the  manager  of  a  country  branch, 
for  example,  writing  of  a  somewhat  doubtful  account,  Informa  the  board 
that  it  is  secured  by  "real  estate,"  he  will  certainly  be  asked  for  t-  "^ 
definite  Information;  and  very  properly,  for  real  estate  is  of  so  ran. 
a  character  that  unlraa  specific  information  is  given,  the  word  conreya 
no  practical  meaning,  so  far  as  actual  security  is  concerned. 

It  id  dcsirnble  then  to  cunsidrr  real  estate  from  a  banking  point  of 
view,  and  to  point  out  what  propcrtj  is  desirable  and  raluable  in  that 
connection,  and  what  is  undesirable  or  worthless. 

Real  property  in  Canada  may  be  clused  under  the  following  heads: 

(1)  Farms. 

(2)  I.and  capable  of  being  made  into  farms. 

(S)     Stores  or  dwellings  in  towns,  cities  or  villages. 
(4)     Vacant  lots  in  towns,  cities  or  villages. 

Factories,  saw  mills,  tanneries,  etc. 

Timbered  lands,  when  owned  as  a  freehold  and  used  for  lum- 


(3) 

(6) 

bering. 

(7) 


Mines. 


Any  one  or  more  of  these  descriptions  of  real  property  may  be 
offered  to  a  banker  as  security  for  an  existing  debt,  and  it  is  certainly 
the  business  of  a  well-informed  banker  to  make  himself  sufficiently  ac- 
quainted with  them  all  to  be  able  to  judge  what  value  to  attach  to  the 

of  country  between  that  city  and  Lake  Hnrnn  was  almost  unbroken  forest.  '  '.y 
thrM  settler*  had  penetrated  Into  its  vast  BoIItuden,  Ajhtlnj  their  way  throufll 
bu»h  snd  awamp  and  slowly  making  clearings.  In  a  region  entirely  destitute  of 
roada.  br!d«p»  or  dwelllnea :— then  given  up  to  bears,  wolves,  and  Indians,  but 
now  full  of  iiroaperous  towns  and  dttes, 

Tt    W3g  anma  tlmo   aflrr  this  that  thn  Rank  of  TTpper  Canada  was  e5tab»shed: 
but  Its  early  days  were  passed  when  forests    covered    most    of   Ontario    and    tht 
town*  and  cities  of  ths  present  day  were  mere  hamlets. 
14 


tin 


'  :i 


I 


„„  BANKING    AND    COMMERCE. 

totelligenl  n,.n.ger  of  a  »"'"'^  ,''"  "^^o™  property,  In  hi.  di- 
with  the  condition,  and  -'"1  »' /'™J™    ."  LL.  be  nddin^  to 

-^-;:rt^"edrr^;^^^ 

would  Uke  »ny  .eeurity  *=  -"  *^,^,  /  ;,^,;r,„  „Lin  a»urance  that 
none)  not  .erntini«n^  .t  very  ""'""  v"7„,  „.,  ,„.,e  i.  .omelime. 
the  taking  of  it  involve,  no  '"P°"»^'"''7-^yf^J'  '  ^  p„,iUon,  it  being 
offered  by  a  debtor  who  ..  m  a  '"'^^"'''"2Mrlir.>«=i,  «!•»'  '1"= 
perfectly  -■'-'oo*' ;>;7f^,  l^.i^w  1  Te  iL.  eLeting  and  n,ore 
L-Cnt  irMit^Tenfof'tU  reeonlt.    And  thi,  he  n.ay  be  in  v.nou. 

"'^'hen  .eeurity  i.  taken  under  '>■"=';-— "^'Ka'ttaLlhl 
naturally,  to  ..gin  f^r:Z':L:::tZutZ:Lr,  whether  th. 
property  i.  »>  .county;  whrre  »'"»'™'  ,        „(  encumbruice. 

eeurity  until  it  i.  cleared,  otherw..e   he  may^find  h.™^^^^  ^^ 
to  a  troublcome  law.u.t      But  »"''JJ°f    ^        ,,^  ^Ue  cleared.   Thi. 
will  do  well  to  insi.t  on  ''J  ^';;=Xker  ^m  -'  have  to  con.ider  the 
prelin>inary  >«'"«  "»"«''',V''"  ^^ " ."  »  encumbrance  at  all,  the  ca.. 
quction  of  encumbrance.    ' '"■"«''  ""      ,^^  ny  will  accrue  to 

will  be  sinmle.     Whatever  value  there  1.  in  tne  prop      , ,      ,     .     j^.. 
will  be  sm  pic.  n„t  if  there  is  an  encumbrance,  a  banker  .  Jung 

the  banker',  benefit.     But  .f  there  «  .^  ^^_^,.__^  ^^^  ^ 

ment  and  experience  require    °  h^'"";"  ^"  ,  ^  .^er  of  bu.ine..,  on  en- 
No  Muc  man  would  ever  '"'' """f^' "        ■  j  ^rfl  to  lend  at  all,  he 

cumbered  property:  or,  at  ""^/.t' -'J^l^fge  »"*  "  ""^  *"  "'" 
would  lend  enough  to  pay  off  the  fi«t  ^tgage^  ^^  ^^  ^^ 

worth  a  banker,  while  to  g.  •"""'J.  Vrte  »mo.-<  of  th.  encim- 
cumbered  property.     Everything  depend,  onjhe  '^^^  ^^^  „,„„,,,  „ 

brance.  If  that  amount  ■'  "  '  ^™baWlity T.  that  a  .econd  mortgage 
„.e..ed  value  of  the  P-Perty,  the  P«'»^^,„„,,  .„„™u  to  half 
would  yield  him  ."methmg      BirtJ    th      nc     ^^  ^  .^  ^^^^_,^_,_ 

the  value  of  the  property,  the    «»'^>   °'  „     .        „,    .fc,    i„tere.t 

atical.  The  valuation  may  be  to.  '''«*'•  "J^f^a^wA  a,  an  addition 
.f  the  first  '^^^^^^''-^J':Z^^:^^Z^.^..r.,.^^^^'- 
SliUo^edT'e!— y  interest  in  a  valuable  property.  ..k- 
ing  the  .econd  mortgage  worth  nothing. 


SECURITY   AND  SECURITIKS   IX   GENERAL. 


'2l\ 


There  are  tiier  cjiisidrral^'H's  also.  Before  anything  can  be  re- 
covered from  .  second  moriftai^i  »  banker  will  6nd  it  ncccsiarjr  to  pay 
off  thc.tirst.  I'i-  t;;i.s  mJiIs  •nn^--  ■  lo  nn  alrfady  fxistinji  il»-l>t.  Yrt.  wlicn 
property  conies  tu  hv  sold,  the  .'act  that  a  bank  holds  it  has  a  depreciat- 
ing tendency,  as  all  expernjr.  e  proves.  A  banker,  therefore,  may  have 
the  mortification  of  finding  that  a  property,  when  he  has  t?ie  whole 
benefit  of  it,  will  not  yield  him  as  much  as  he  paid  for  the  first  mort- 
gage; making  it  apparent  that  lie  would  have  been  in  a  better  position 
if  he  had  never  tr.ken  n  second  security  at  all.  A  banker,  too,  has  to 
consider  also  that  while  he  must  disburse  cask  in  paying  ofT  a  first  mort- 
gage, it  is  almost  an  iinpossihiit}  to  sell  without  accepting  a  mortgage 
for  a  large  part  of  the  purchase  money.  He  thus  finds  tliat  to  the 
original  debt,  which  was  more  or  less  of  a  lock-up,  he  has  added  another, 
which  being  in  the  shape  of  a  mortgage,  is  practically,  a  lock-up  also. 

The  question  of  encumbrances  deserves  especial  care  when  the  prop- 
erty is  connected  with  a  manufacturing  business.  If  the  business  is  un- 
successful, the  propert}'  will  depreciate  by  an  amount  that  would  seem 
incredible  to  any  but  one  who  has  had  e:^periencc. 

It  has  sometimes  happened  to  a  banker  to  have  the  mortification  of 
finding  that,  when  he  has  paid  off  an  encumbrance  of  only  one-quarter 
of  the  estimated  value  of  manufacturing  property,  the  sale  has  not 
realized  even  half  of  this  paltry  sum. 

The  best  form  of  rjal  estate  security,  generally  speaking,  is  that  on 
shops  and  offices  in  one  of  the  main  streets  of  a  commercial  city.  The 
very  worst,  as  a  rule,  is  a  mill,  a  factory,  or  a  tannery.  A  banker  will 
find  it  prudent,  as  a  rule,  though  he  may  take  such  a  security,  never  so 
to  rely  upon  it  as  to  be  more  indulgent  either  as  to  time,  rate,  or  amount 
than  he  would  be  had  he  no  such  security  at  all.  And  this  more  par- 
ticularly if  the  property  is  encumbered,  no  matter  how  small  the  en- 
cumbrance may  seem. 

The  securities  that  bankers  may  take  in  the  active  prosecution  of 
their  business  are  so  fully  opened  up  in  the  chapters  on  Loans  that  it 
is  needless  to  refer  lo  them  again.  The  only  additional  remark  needed 
is  to  state  that  a  merchant,  sometimes,  instead  of  discounting  a  certain 
amount  of  trade  bills  will  obtain  an  advance,  pledging  the  bills  as  secur- 
ity. This  may  he  a  more  economical  process  in  case  he  only  requires  the 
loan  for  a  shorter  time  than  the  bills,  on  an  average,  hare  to  run. 


CHAPTER  XXril- 

BANKINO  AMD  OOMMBBOIAL  LOSSES. 

VAB.OU,   SOBRC.   ov   Lo..-Pa,t.cu..a»   In.tanc.    C,t.»-C.tv    0, 
Glaboow  Bank  CoitApii. 

THESE  ,re  coupled  together  in  thi.  tre.tUe  for  the  re«on  Uul 
there  i.  generally  .  very  elo.e  conHecUon  between  them. 

A  bank  cannot  lo.c  money  by  a  commercial  '"  -"""^  ^^ 
curtomer,  except  in  the  ca«.  of  deliberate  fraud  l""  l""'"  ^^^l^^^l 
Td  is  unable  To  pay  hi,  debt,.  It  i.  al,o  not  .eldom  «.e  »jj*f  "  ™^ 
chant  fails  by   reason  of  the  lo,K,   he,   .n  hi,   turn,  .ustam,   by   *u 

"Tmay  indeed,  .specially  in  .ome  '>-t\°^lt;n''"Thtr. 
of  a  heavy  fall  in  the  price  of  some  commodity  he  deal.  in.  IBU  ■•  • 
contin^neVtllat  every'wi.e  merchant  will  take  special  mean.  ..  pr- 

'"■  xlfn  "here  are  the  losses  that  a  merchant  may  suffer  by  .peculation 

T tre  are  not  legitimate  lo.,e,.     They  ought  not  to  «=cur  ^  all 

But  thev  d^oceur  in  Sufficient  number,  to  make  it  neccary  for  a  banker 

'•t^tXkinVanT'commercial  lo„e.   are   much   inSueneed   by   .b. 

c  Jl  or.h'e1rade  of  the  di.rict  in  "--'^J  J-'^pU^uUr" dUt^^ 
,!,„  by  times  of  prosperity  or  depression,  either  in  a  particul 

"  '«t,  ttrptr W..11  known  that  failure,  are  much  more  common 
U,  new  «untrie,  than  in  old;  and  in  the  newer  part,,  let  u,  say,  of 
United  State,  and  Canada  than  '"  *'"""■  ,,  .^„g..  „,en 

Thev  are  also  more  common,  other  thing,  neing  enu.  , 

than":  mLtnirfhe  latter  in  .•"-f/^rV"-  P"*- ""S  "i 
he  incur,  *'f "  't'doThi.'™::«'hr  mpoS^:™  to'him  of  care  in 
banker  is  rarely  able  to  do  ">■,,  b"-" '"«  „„tini.ing  business  biU.  ». 
having  loan,  adequately  »«'="''^ '  •'"°  °/  '""^tg  taken  under  that 
„  to  guard  against  mere  »'="""'^'«°"J2;  oughf  in  the  reason  of 
^Ue.  With  ™ch  P--«-;'„t:l.r;t  irhtc:,.omer.  faU,  the 
thing,,  to  lake,  it  should  be  the  rule,  inai  <: 

.ecrity  should  be  capable  of  ^^'f  Xc^atronT    r?.-^^^^^^^^^    «   i. 
other. 


BANKING    AND    COMMERCIAL    LOSSES. 


Particular  Instancrh  ov  Losses. 

The  most  t-fffctive  way  of  doing  this,  and  it  will  add  point  to  all 
observations  on  the  subject,  will  be  to  cite  particular  inttancet  of  loties. 
Most  of  these  have  come  under  the  author's  own  observation,  and  have 
made  an  indelible  impression  on  his  memory.  The  rest  were  well  known 
at  the  time  to  the  commercial  and  banking  world.  Names,  dates,  and 
places  will,  of  course,  not  always  be  given,  for  it  would  not  be  proper 
to  do  it;  but  the  cases  cited  may  be  relied  upon  as  narratives  of  actual 
events;  every  one  of  them  conveying  some  practical  lesson  for  future 
guidance. 

More  than  fifty  years  ago  no  goods  in  a  certain  line  of  English  man- 
ufacture were  of  higher  finish  or  more  beautiful  design  than  those  made 
in  the  great  tslnblishment  of  B.  &  Co.,  in  Yorkshire.  The  firm  had  a 
warehouse  in  London,,  and  a  large  part  of  the  goods  they  produced  were 
sent  there,  and  sold  to  wealthy  residents  of  the  capital,  or  distributed 
throughout  the  Kingdom  from  that  centre.  The  leading  noblemen  of  Eng- 
land were  their  customers;  and  on  one  occasion  they  manufactured  a 
magnificent  set  of  goods  for  the  King. 

The  members  of  thf  ^rm  Wvcd  in  expensive  style,  and  took  the  lead 
in  the  fashionable  society  of  the  neighborhood.  But  to  the  bankers  of 
the  district,  they  came,  in  course  of  time,  to  be  known  as  continually 
short  of  money. 

They  were,  however,  the  kind  of  people  sometimes  called  "clever 
financiers,"  and  having  »<  vcral  banking  towns  within  easy  distance,  they 
managed  for  a  considerable  time  to  get  cash  for  checks,  by  drawing 
■ometimet  on  one  bank  and  somet'mes  on  another,  varying  the  operation 
by  drafts  upon  their  house  in  London;  that  house  rtpeating  the  opera- 
tion conversely. 

But  as  time  went  on  these  I.ondon  drafts  occasionally  went  to  pro- 
test. Bankers  in  the  neighborhood  got  mort  and  more  shy,  and  at 
length  refused  to  cash  their  checks  or  bills  at  all.  Finally,  the  firm  came 
to  a  stop,  and  went  into  bankruptcy. 

When  the  accounts  in  bankruptcy  were  presented,  the  •creditors  were 
astonished  to  find  that  a  large  landowner  in  the  neighborhood,  to  whom 
their  works  belonged,  was  a  creditor  for  a  sum  representing  the  accumu- 
lated rental  of  some  twenty  years,  or  about  £20,000  and  interest !  Thli 
rent,  his  steward  (with  his  own  good-natured  concurrence)  had  allowed 
to  run  on  year  after  year  without  pressing  for  payment,  largely  out  of 
consideration  for  the  workmen  employed  in  the  establishment. 

The  estate  paid  practically  nothing.  The  works  were  never  re- 
opened. Thu  family  disappeared  from  the  district.  Many  local  credi- 
tors sufl'ered  losses  they  could  ill  aff'ord,  but  the  bankers  spoken  of  had 
been  wise  enough  to  act  npon  indications  of  weakness;  and,  having 
taken  measures  in  timr,  lost  practically  nothing. 

The  cause  of  this  collapse  might  be  largely  traced  to  the  good  nmtare 


m 


„,1  BANKING    AND    COMMERCE. 

of  the  lan.llord;  for  il  cnronrngcd  Ih.  firm  in  ™  recHe>.  .tyle  of  doing 

''""or»rti8lic  l».to»  thrn«rlve.,  »nd  fond  of  new  de.igns,  Ihey  wtre 
conlinuallv  brinpng  out  rare  .nd  cpen.ive  ,tyl«  of  good.;  concerned 
oT-i,h- keeping  up  .h.ir  rcpn.a.io,  ,  carelc.  whether  they  ---''- 
i„g  profit,  or  not.    They  «erc  in  rc«Uty  living  upon  th"""""°'/  ^ 
in«  alt  the  vear.  ot  <1.e  bu«ne«:  and  he,  of  coarse,  wa,  the  ch.ef  .uf- 
fcfcr  bv  the  failure.    If  he  had  done  hi.  duty  to  himself  and  h,>  estate, 
thev  w,;uld  have  been  compelled  to  manage  their  busines,  so  -s  no    on  y 
to  m-.ke  b.autiful  goods,  but  to  make  profits  (or  retire);  and  m.ght  have 
beele  a  wealthy 'and  prosperous  concern,  - .  — ^"' . "'  f  "^J^,"; 
facturers  in  that  district  had  done  and  are  do.ng  at  th.s  day.     But  the 
gcod  nature  of  th.ir  landlord  was  their  ruin.     And  .t  has  to  be  added 
Lt  too  ,a,y  a  supply  of  money  has  paved  the  way  to  ru.n  ol   many 
°  Xn:  "ftc-  these  events  the  -mereial  community^  of  Live.^ 
■  pool  ,.as  Startled  to  'earn  that  one  of  the  leading  banks  of  the  c.ty  w« 
fn  difficulties,  and  had  been  compelled  to  apply  to  the  Bank  of  En^and 
for  assistance.    They  were  still  more  surprised  to    earn  the  "-"f  *« 
embarrassment,  which  proved  to  be  wholly  owing  to  .aorrf-».<e  adv^c» 
L  a  ,i«g(.  frm!     This  firm  was  in  the  habit  of  rece.v.ng  eons.gnmen  . 
of  merchandise  from  foreign  houses  on  a  '"y  -tens.ve  scale    and 
cepling  bills  against  them.     This  was  their  business      Ihey  had  carn.d 
it  on  sueccssfullv  for  many  years  and  had  prospered. 

At  this  time  however,  the  financial  and  mercantile  position  had  be- 
come clo  Id  Markets  were  dull.  Goods  were  difficult  to  sell  and 
l-^dilv  falling  in  value.  Meanwhile  the  house  went  on  accepting  .i 
r',  •  B,:!  TlfeiraeUtanec,  were  constantly  n-'""."^;^-*„;t„^'"4 
billing  to  snerifiee  the  interests  of  distant  consignees,  instead  °f  tangmg 
Tir  goods  to  sale,  th.v  warehoused  them,  obtaining  advance,  from  the 
bank  to  retire  acceptances.  ,  ,, 

It  so  happened  that  at  this  time  the  mMiager  of  the  bank,  well 
known  as  anTble  man  in  the  community,  was  aUent  for  .  '--de  »" 
period  from  ill-health.  He  had  gone  »'>"'»*•  ""^  "  7°' ,td^„"  tte 
communicate  with  him.  The  second  officer  and  fte  -J'-t"" J''',^,.";'  * 
nerve  and  did  not  care  to  take  ti„  responsibility,  of  compelhng  the 
goods  advanced  on  to  be  sold,  but  wen',  on  makin,  "dvaiios,  hoping  for 
fturn  of  the  tide  which  would  save  t.ie  house  from  ruin,  and  the  bank 

from  loss.  4?r,nr.nn  rl  fi'-it.  went  on 

Thus  the  advances,  which  were  unV  iome£o 0.000  r,t  ^-'^' 

that  w:.s  steadily  going  down  in  value  ^^ 

TI.e  situation  was  Vk  ni'Tung  terrilil.x   si  nous,      i  <■  ^      i 


HAXKIXG    AND    COMMERCIAL    LOSSES. 


ing  loss  on  other  customcra.  Under  the  circumstances  the  Acting  Man- 
ager and  tlir  Dirt-i'tdrs  Inriinic  utterly  dcniornlized.  So  all  drifted  on 
together^  the  advances  of  the  bank  mounting  up  week  after  wtek  until 
they  reached  the  enormous  sum  of  £730,000. 

Then  the  crisis  came.  The  resources  of  the  bank  were  exhausted. 
The  Bank  of  England,  which  had  sometimes  made  advances  to  the  bank 
(as  is  often  the  case  in  Englan-l)  in  the  ordinary  course  of  business, 
was  mad'--  t.^quainted  with  the  condition  of  affairs,  but  refused  to  in- 
tervene. Tlie  bank  perforce  stopped  payment.  An  enormous  loss  re- 
•altcd  in  the  realiz  -tion  of  the  warehoused  goods.  The  mercantile  firm 
went  into  bankruptcy;  but  scarcely  anyone  was  interested  in  the  firm 
except  the  bank,  which,  b>  its  culpable  weakness  and  mismanagement, 
had  absorbed  the  whole  affairs  of  the  firm  into  its  own  hands. 

The  house  disappeared  from  the  seaport.  And  though  the  bank 
resumed  business  in  a  reduced  form,  it  never  recovered  its  credit  and 
prestige  and  was  finally  wound  up,  its  business  being  passed  over  to 
another  institution.  The  bank  was  the  Royal  Bank  of  Liverpool,  and  the 
time  1847- 

These  disastrous  consequinces  all  ensued,  first,  from  the  folly  of  « 
mercantile  house  accepting  too  heavily  against  merchandise,  and  allow- 
ing it  to  accumulate  instead  of  bringing  it  to  sale;  then,  and  onward  con- 
currently in  the  bank's  making  advances  to  an  unreasonable  amount 
against  the  same  merchana.de,  and  failing  in  the  courage  required  to 
face  the  situation  and  vompel  sales;  until  finally  all  control  was  lost, 
and  the  bank  and  mercantile  firm  together  drifted  into  a  position  from 
which  there  was  no  recovery. 

The  whole  story  is  fiaught  with  striking  lessons  to  both  merchants 
and  bankers.  There  was  noi,  however,  a  suspicion  of  wron^r-doing  or 
fraud  by  either  party.  All  that  could  be  alleged  was  a  terrible  deficiency 
of  good  judgment  and  nerve. 

City  of  Gr.Ascow  Bwk  Cot-lai'se. 

This,  however,  could  not  be  said  of  the  frightful  collapse  of  certain 
mercantile  firms  and  the  City  of  Glasgow  Bank  which  occurred  some 
years  affetrwarJ.  That  collapse  ..  ai  a  case  of  mercantile  ambition  grad- 
ually developing  operations  spread  over  nearly  all  the  markets  of  the 
world,  partly  legitimate,  but  in  the  end  grossly  illegitimate;  also  of 
banking  ambition,  aiming  to  carry  larger  accounts  than  any  bank  in  the 
country;  both  finally  ending  in  the  most  astounding  financial  frauds  and 
disasters  of  the  nineteenth  century.  Of  these  operations  at  first  there 
was  nothing  worse  to  be  said  than  that  they  were  far  too  extended  for 
the  capital  of  the  firms  interested,  and  far  too  extended  for  the  bank 
itself  to  encourage  by  advances.  After  the  operations  of  the  firms  be- 
came manifestly  unprof.table,  the  bank  might  have  brought  the  whole 
to  a  close  with  a  loss  of  £50,000  or  £100,000  at  most.  But  this  the 
directors  i  ''usrd  to  face,  and  went  on  making  advances,  hoping  for 


tl« 


BANKING    AND    COMMERCE. 


s  turn  in  the  tide  which  never  came.  Beiideg  thia,  the  accounts  of  the 
finni  (there  were  four  in  all)  were  highly  profitable,  owing  to  the  mul- 
tiplicity of  exchange  operation!  connected  with  them,  and  the  immenie 
amount  of  interest  they  carried.  So  the  advances  went  on  increasing, 
until  they  amounted  to  sums  far  beyond  what  had  ever  been  heard 
of  in  Scotch  banking. 

Hod  tlicir  opcrnlious.  ivin  tlitn,  been  all  bnsrd  i  n  merchandise,  they 
might  pof silly  have  been  wound  up  with  no  worse  result  than  the 
bankruptcy  of  the  firms,  and  the  loss  of  part  of  the  capital  of  the  bank. 

There  were  four  firms  interested  In  these  operations,  differing  only 
in  nanit  .  for  they  were  so  interlact-d  as  to  be  practically  one  concern. 
And  the  time  came  at  length  when  they  launched  into  great  operations 
in  real  estate,  and  bought  not  merchandise  only,  but  the  land,  buildings, 
and  plant  by  which  the  merchandise  was  produced,  and  this  in  many 
eountriet,  and  to  fabulous  amounts. 

By  this  time  their  operations  had  taken  the  shape  known  in  com- 
mercial circles  as  "plunging;"  that  is,  buying  heavily  and  selling  as 
heavily,  entirely  regardless  of  the  condition  and  prospects  of  any  mar- 
ket in  any  part  of  the  world. 

The  natural  consequences  ensued  in  the  shape  of  losses  to  enormoua 
amounts.  The  hank,  however,  as  in  the  former  case,  was  under  weak 
management,  and  became  so  hopelessly  entangled  in  the  operations  of 
the  firms  that  they  had  to  "sink  or  swim"  with  their  customers. 

Then  when  the  purchases  of  property  by  the  firms  necessitated  ad- 
vance! of  an  unpncedented  amount,  which  were  inevitably  of  the  nature 
of  a  "lock-up,"  the  bank  fell  into  a  terrible  snare  proposed  by  the 
aatute  senior  partner  of  one  of  the  firms,  and  became  parties  to  the 
manufacture  and  ntgotiation  ol  what  were  practically  fraudulent  bills. 
Facilu  detcmuM  Avemi.  The  downward  road  is  only  loo  easy.  Once 
embarked  in  such  lines  of  operation  it  became  impossible  to  draw  back, 
and  the  authorities  of  the  bank  drifted  helplessly  on.  Yet  they  were 
well  aware  that  the  bank  was  "on  the  road  to  ruin,"  unless  indeed  by 
some  almost  miraculous  turn  of  affairs,  and  that  in  various  parts  of  the 
world,  these  properties  could  be  sold  for  suflicitnt  to  retire  the  debts  of 
their  customers  and  enable  the  fraudulent  bills  to  be  withdrawn. 

But  the  fortunate  turn  of  affairs  never  came. 

The  ma!*s  of  bills  that  had  been  set  afloat  bearing  the  bank's  name 
were  constantly  falling  dne  in  London.  To  enable  them  to  be  met,  other 
bills  were  drawn  purporting  to  be  for  difl'erent  transactions  of  an  origi- 
nal character,  but  which  were  nothing  more  than  fraudulent  renewals. 

The  firms,  as  is  the  manner  of  men  who  have  embarked  on  such 
desperate  enterprises,  cntcrtd  npon  other  engagemenU,  purchased  other 
properties  up  and  down  the  world,  (for  the  irhole  world  was  the  theatre 
of  their  operations),  made  contracts  for  other  masses  of  merchandise, 
all  of  which  necessitated  the  Seating  of  other  masses  of  bills,  the  bank 
being  of  necessity  a  party  to  the  whole  wretched  business. 


BANKING    AND    COMMERCIAI,    LOSSES.  «17 

The  volume  of  bill)  therefore  went  on  eonrtantW  increaling;  nnd 
u  these  nil  (iniill.v  had  their  domicile  in  London,  the  banker!  aud  bill 
broken  of  the  eity,  in  aplte  of  skillful  device,  kept  in  oneration  to 
deceive  Ih-m,  b  gnu  to  be  »uipiclon«,  and  to  confer  with  each  other 
"There  are  too  many  of  theie  Titv  of  Glasgow  Bank  bills  floating 
about,"  they  said;  nnd  the  general  feeling  was  that  the  lolume  should 
be  curtailed.  But  none  of  the  parties  dreamed  of  the  appalling  sum  to 
which  the  total  amounted. 

The  Bank  of  England,  the  great  joint  stock  banks,  nnd  the  discount 
houses  then  began  to  "diicrimmale  ngninst"  the  bills,  as  the  current 
London  phraac  is.  The  signs  of  constant  renewals  b.cnme  more  and 
more  evident,  and  they  refused  to  increase  the  "lines"  they  held. 

But  the  plungers  were  men  of  resource;  and  by  this  lime  lind  Income 
utterly  unscrupulous,  both  in  what  they  said  and  what  they  did.  False 
statements  were  made  in  confidential  interviews.  Many  of  the  opera- 
tions were  transfirred  to  other  linnncinl  centres.  More  nnd  more  in- 
geniously contrived  hntches  of  bills  were  set  nHoat,  the  nnme  or  guaran- 
tee of  the  bnnk  being  attached  to  all  of  them.  And  as  it  was  known  that 
the  bank  was  on  the  principle  of  "unlimited  liability"  with  a  circle  of 
stockholders  whose  wealth  in  the  aggregate  was  immense,  the  money 
markets  of  the  world  absorbed  them.  By  such  means  the  inevitable  crisit 
was  deferred  month  after  month.  All  this  while  the  ordinary  business 
of  the  bank  at  its  numerous  branches  went  on  as  usual,  and  was  eon- 
ducted  with  the  usual  pndence  of  Scotch  banking. 

At  length,  however,  the  long-dreaded  day  arrived,  nnd  it  came  about 
thus. 

Some  little  time  before  the  collapse,  the  older  banks  of  Scotland  liad 
been  approached  with  a  view  to  obtaining  "temporary  assistance,"  as 
is  customary  in  such  cases.  These  banks,  however,  had  for  some  time 
entertained  a  suspicion  that  something  wrong  waa  transpiring,  thougb 
none  of  them  had  the  remotest  idea  of  its  real  character,  and  still  lest 
of  its  enormous  extent. 

When,  then,  assistance  was  asked,  they  naturally  (and  as  is  custom- 
ary) stipulated  that  an  examination  of  the  condition  of  the  bank  should 
be  made. 

Before  the  examination  had  proceeded  far,  sufficient  was  revealed  to 
eauie  the  older  banka  to  refuse  assistance.  This  was  the  .nd.  The 
Glasgow  Bank  stopped  payment  immediately.  So  did  the  circle  of 
dependent  firms.  And  very  shortly  Scotland  was  convulsed  by  the 
astounding  revelations  that  were  maje  of  fraud  and  falsehood  on  t 
scale  never  before  drenmed  of.  Week  by  week  enormous  masses  of 
maturing  bills  were  protested ;  and  as  the  full  extent  of  the  affair  begu 
to  be  revealed,  London  itself  stood  aghast  at  the  masses  of  fraud  that 
its  banks  and  bill-discoimters  had  been  supporting.  For  a  time  almost 
everything  emanating  from  Scotland  was  clouded  with  suspicion. 

Strong  and  solvent  firms,  and  banks  that  had  not  the  remotest  con- 


■ 
:  :- 

*  .-1' 

1 

i 
P 

ii 

„g  BANKING    AND    COMMERCE. 

neclion  with  the  firms  thai  h«d  carried  on  theie  ipeculatlon.,  were  «* 
pectrd.  It  appeared  likely,  indeed,  that  a  general  banking  panic  and 
con..quent  "nin"  upon  all  the  hank.  »o>.ld  .pread  over  Scotland. 

But  the  rest  of  the  hnnka  m>t  the  ailnntion  with  a  high  degree  of 
„i.dom  and  courage.  They  determined  to  act  in  concert  and  announced 
that  thev  would  pav  the  note,  of  the  d.funct  bank.  Thi.  .topped  the 
incipient  panic.  And  a.  it  came  to  be  realised  what  an  enonnou.  finan- 
cial .trcngth  rculted  from  the  whole  body  of  .tockholder.  being  l.ab  e 
to   the   whole   extint   of  their   uu-us,   the   public   excitcmeul   uradunllv 

siiliHiclt'd.  , 

But  the  alarm  of  the  unfortunate  .tockholder.  went  on  increa.ing, 
and  when  the  report  of  the  committee  of  inve.ligation  wa.  received,  an- 
nouncing that  the  whole  of  the  capital  and  the  reaerve  f  und  wa.  lo.t,  and 
that  the  .hareholder.  would  have  to  pay  in  addition  the  unheard  of  .urn 
of  £5,900,000  .terling  to  the  creditor,  of  the  bank,  an  unparalleled 
Knaation  wa.  CR-aled,  not  in  Scotland  only,  h«t  throughout  the  banking 

""xhe  -eport  of  the  committee  of  inveatigation  having  made  it  clear 
that  there  hod  boon  gro..  fraud  and  miareprcentation  on  the  part  of 
the  directors,  and  certain  officials  of  the  bank,  tl>c  Directors,  .Manager, 
and  .ecretary  were  apprehended  and  brought  to  trial.  The  aecreta.-y, 
however,  wa.  accepted  as  a  witnes.,  a.  his  plea  of  aetmg  under  con- 
rtiaint,  and  bv  order  of  hi.  .uperior  officer.,  wa.  allowed. 

The  trial  laated  eleven  day.,  and  it.  revelation,  were  another  lllu. 
tration  of  the  ..ying  that  "Truth  i.  atranger  than  fie  n."  No  romancer 
or  noveli.t  in  the  wildcat  of  hi.  imagination.  ^"W  ""  kr;  """"'le 
,uch  a  .erie.  of  event,  a.  that  trial  brought  forth.  They  filW  he  whole 
banking  and  commercial  world  with  cMitemenl,  and  oauaed  the  eipe- 
rienced  men  of  the  London  money  market  almoat  to  hold  up  their  hand, 
in  horror  at  the  operation,  to  which  they  had  unwittingly  been  P'rtiea. 

The  merewitile  failure,  were  on  a  Kale  of  almost  unprecedented 
magnitude  for  that  time;  the  liabilities  of  Ja,.  Morton  &  Co.  being 
£sToO,000,  of  Smith,  Fleming  &  Co.,  £1,600,000,  of  Matthew  Bu- 
fhaZ  «.  Co.,  £1.810.000,  of  Jame.  Wright  &  Co.,  £750.000,  beaid-^ 
other,  of  .mJler  amounts.  The  total  liabilitie.  of  the  circle  amoun  ed 
to  nearly  £6,500,0001  The  a..eta  were  a  mere  nothmg,  and  almort  the 
whole  loss  fell  upon  the  bank  and  it.  unfortunate  stockholder.. 

For  them,  indeed,  the  c.U.trophe  brought  about  mi.fortune.  ftat 
till  then  were  unparalleled.  Suicide,  and  madnes.  en.ued  Number, 
of  re.pectable  familie.  were  reduced  to  poverty,  and  to  .uch  an  extent 
did  thi.  prevail  that  a  public  .ub«ription,  which  re.ulted  in  a  very  large 
amount  of  money  being  raiaed,  wa.  «t  on  foot  for  their  relief.  Thu. 
It  came  about  that  number,  of  pemona  throughout  Scotland,  who  would 
but  a  .hort  time  before  have  abhorred  the  idea  of  receiving  aid  from 
without,  fomid  themKlvo.  compelled  by  the  prcMure  of  poverty  to  .ccepl 
the  benevolence  of  the  public. 


BANKING    AND    COMMERCIAL    LOSSES. 


219 


One  very  extraordinary  contingency  happened  in  connection  with 
the  liquldntion,  which  up  to  that  time  could  not  have  bien  conceived 
poMlble.  The  <^jledoniHn  Bank,  a  well-managed  institution  with  head- 
quarters in  Inverness,  had  taken  as  security  from  one  of  its  debtor* 
four  Mkaret  >f  ^10,'  each  in  tht-  City  of  Glasgow  Bank,  The  shares  at 
the  time  wen'  wril  quoted,  and  considered  good  property.  The  name 
of  the  Caledonian  Bank  was  therefore  on  the  Glasgow  Bank's  register 
at  the  time  of  failure,  and  thus  this  bank  was  liable  to  the  extent  of  it*« 
whole  capital  for  tlie  Glasgow  Bank's  debts.  It  was  therefore  included 
amongst  the  "wealthy  stockholders"  who  were  expected  to  contribute 
large  sums  to  make  up  the  deficiencies  of  other  stockholders  who  were 
reduced  to  poverty.  The  knowledge  of  this^  produced  great  excitement 
in  the  North  of  Scotland,  especially  amongst  the  bank's  depositors  and 
shareholders.  A  "nm"  set  in.  The  bank  struggled  bravely  for  a  time, 
but  eventually  was  compelled  to  suspend  payment. 

Its  doors  remain*  d  closed  for  some  months.  Meanwhile  a  large 
guarantee  fund  was  raised,  negotiations  for  settlement  were  entered  upon 
with  the  liquidators  of  the  bank,  and  ultimately  .£11,000  was  accepted 
in  disehargi'  of  the  liability.  It  seems  incredible  that  this  immense  sum 
had  to  be  paid  as  the  result  of  taking  the  Glasgow  Bank's  shares  to 
secure  a  trifling  debt  of  £\0Q.  But  so  it  was.  The  bank  resumed  busi- 
ness with  the  universal  good-will  of  the  people  of  Scotland,  and  of  the 
otlhT  b.nnks.  and  has  continued  in  a  prosperous  condition  ever  since.  But 
it  had  the  misfortune  to  furnish  this  severe  object-lesson  of  the  danger 
of  taking  unlimited  bank  shares  as  security.  The  danger  is  not  so  great 
since  the  gene  1  adoption  of  the  principle  of  limited  liability;  but  even 
now,  the  large  amount  of  uncalled  capital  general  in  English  banks 
might  be  a  cause  of  serious  loss  if  a  similar  cTise  arose. 

An  embarrassing  question  connected  with  the  disaster  was  the  lia- 
bility of  persons  who  were  simply  shareholders  as  trustees  or  executors. 
The  liquidators  announced  their  intention  to  hold  all  these  as  liable  in 
their  personal  estates;  a  demand  which  spread  consternation  over  a 
wide  circle. 

Executors  and  trustees  naturally  contended  that  the  liability  attached 
solely  to  the  assets  of  the  estates  they  administered;  a  severe  liability 
indeed  in  many  e.ises,  and  inflicting  untold  misery  upon  widows  and 
children  who  were  dependent  on  the  provisions  of  wills  made  in  their 
behalf.  But  that  there  should  exist,  over  and  above  this,  a  personal 
liability  of  tlie  trustie  himself  to  the  extent  of  his  whole  fortune,  was 
deemed  incredible.  It  seemed  utterly  inequitable.  Litigation  therefore 
ensued,  and  n  test  case  bring  carried  to  the  highest  court  in  the  realm, 
the  Judicial  Committee  of  the  Privy  Council,  that  court  decided  that 
the  trustees  were  personally  liable.  The  judgment  was  considered  by 
numbers  of  people,  probably  the  majority,  as  contrary  to  -cnson  and 
equi'.y,  but  the  decision  of  the  court  conveyed  by  the  Chancellor  was 
deemed  a  masterpiece  of  legal  acumen  and  subtle  reasoning.     NeedlcH 


BANKING    AND    COMMERCE. 


<a  imj,  it  broki-  with  frightful  Mvrrily  upon  nunbtn  of  pcnoni  whu 
had  Dcwr  drrivrd  hrnrfit  from  Ihc  •Inck.  By  jueh  Kverc  mmum,  how- 
erer,  the  wholr  of  the  creditor!  of  tlie  banic  were  ultimately  paid. 

When  thingi  hegan  to  resume  their  ordinary  eourie  throughout  Seol- 
land,  a  profound  imprrmlon  took  ponesiion  of  the  public  mind,  not  In 
Scotland  only,  but  wherever  the  principle  of  unlimited  liability  prevailed, 
vi«.,  thrtt  the  ByBtem  was  dnngeroni;  and  that  tome  means  mu«t  be  de- 
viled which  would  r -event  luch  ruinouf  diiaiten  again  overtaking  their 
Itoekholden.  What  wa»  required  was  some  itatutory  limiUtion  of  lia- 
bility at  the  outlet,  no  that  all  purchaser!  and  holders  of  stock  would 
have  accurate  knowledge  of  the  worst  that  could  happen  to  them,  in  eale 
of  mi!fortune  befalling  the  inititution. 

Legisliition  ainady  eiiated  in  the  Joint  Slock  Companies'  Act  by 
which  any  company  ciiuld  limit  its  liability;  and  amendments  were  made 
extending  the  operation  of  the  act,  so  as  to  make  it  suitable  to  the  cir- 
cumstances of  banks. 

One  condition  of  the  ligal  adoption  of  the  principle  of  limitation 
was  distasteful  in  t!"  ixtrtme,  vis.,  that  any  bank  or  company  desiring 
the  benefit  of  it»  pro  i.,inns  must  add  the  word  'limited"  as  an  essential 
part  of  its  title. 

Many  banks  were  afraid  of  injury  to  their  credit  by  the  addition  of 
the  obnoTioni  word.  In  Scotland  this  requirement  waa  felt  to  be  par- 
ticularly distasteful  to  the  majority  of  the  banks,  inasmuch  as  the  three 
oldest  institutions  of  the  country,  the  Bank  of  Scotland,  the  Royal  Bank 
of  Scotland,  and  the  British  Linen  Company,  all  claimed  that  they  were 
on  a  limited  basis  already  by  their  charters;  and  that  there  was  no  need 
for  th.m  to  add  the  word  to  their  title.  The  rest  of  the  Scotch  banks 
therefore,  were  particularly  averse  to  the  use  of  the  word,  as  they  con- 
sidered it  would  place  them  in  an  inferior  position  before  the  public. 
The  leading  London  banks,  howevei,  gradually  adopted  the  principle, 
enlarging  their  subscribed  capital  so  as  to  create  a  large  margin  of  un- 
called liability;  and  added  the  word  "Limited"  to  their  title.  This,  u 
eiperlence  has  proved,  did  thim  no  harm.  Depositors  and  the  public 
were  alike  satislied:  and,  gradually  following  their  example,  the  joint- 
stock  banks  of  England  and  Ireland  almost  all  adopted  the  principle. 

Till  Scotch  banks,  who  had  at  first  stood  out,  at  length  overcame  their 
fears,  and  the  same  result  followed.  The  whole  joint-stock  banking  of 
Great  Britain  and  Ireland  is  now  therefore  conducted  on  the  principle 
of  limited  liability,  with  a  large  reserve  of  uncalled  capital. 

And  from  the  failure  of  the  City  of  Glasgow  Bank,  as  well  as  that 
of  the  Western  Bank  of  Scotland  some  years  before,  all  bankers  have 
learned  that  ambilion,  pai»,  and  what  is  called  enlerpriie,  are  not  ele- 
ments of  good  banking.  These  two  banks  were  distinguished  by  these 
characteristics  from  the  first,  and  not  seldom  twitted  their  neighbors 
with  their  slow,  old-fashioned  methods. 

Time,  however,  and  events,  justified  them. 


crtjrrKR  xxnii. 


BANKINa  AKD  GOHMXROIAL  L08BES— Contlnutd. 

A    Corner    is    Wheat— Anotiicii    Oiii\«THf»r»   (ihais    SpErrLATiox  — 
AnvAxcru  on  Waiiekoi  *k  Rbceipt«-  -Rivki  of  the  Grain  nt'siNcs*. 

IF  exprripncr  has  niiy  valuf,  few  narralivrt  can  be  more  initructive 
than  thr  rroonU  of  commrrcial  and  banking  losici  and  disaiten 
now  biiiiR  prt'scntcd.  They  indeed  form  n  lorl  of  chnrt  Ihiit  indi- 
cates thr  rocki  and  iboals  bescttinfc  navigation  in  banking  and  com- 
mercial iipni.  It  ii  therefore  of  high  importance  that  the  record  ihall  be 
true;  and  tht-  schction  of  instance!  such  as  to  illustrate  some  danger  to 
be  guarded  against.  The  incidents  related  in  these  and  succeeding  chap- 
ters fulfill  both  conditions. 

Somr  yi'itrs  ;igo,  in  a  western  city  of  this  contim-nt.  an  able  niid  in- 
telligent merchant  in  the  grain  trade  was  carrying  on  business  year  after 
year  with  safely  and  satisfaction.  He  was  in  good  credit  with  hi« 
bankers,  and  well  esteemed  on  "  'Change"  for  bis  probity  and  u-li'ibility. 
He  had,  at  times,  his  loMes  by  falling  markets,  but  he  had  also  his  gaint; 
and,  taking  one  season  with  another,  he  made  steady  progress  and  quietly 
accumulated  capital. 

His  dealings  with  his  banker  had  always  been  marked  by  probity  and 
punctuality.  He  could  be  relied  upon  to  fulBU  his  engagements,  and 
being  well  known  to  his  bankers  as  a  man  of  remarkable  intelligence,  hii 
account  was  deemed  one  of  the  most  satisfactory  in  their  connection. 

His  operations  were  legitimate,  though  of  considerable  magnitude, 
and  lo  high  was  he  esteemed  that  his  bankers  had  no  hesitation,  in  an 
active  stason,  in  making  considerable  advances,  at  times,  on  his  simple 
engagement  to  deposit  equivalent  bills  of  lading  for  grain  in  the  course 
of  a  few  days,  when  the  cargoes  he  was  purchasing  would  be  completed. 

This  was  not  tin-  usual  conrse  of  his  ncciunt;  for  generally  the  ad- 
vances he  obtained  were  secnred  at  the  time.  But  these  exceptional  ad- 
vances were  considered  to  be  needful  when  the  movement  of  grain  waa 
exceptionally  heavy.  For  years  no  failure  to  meet  his  engagements  had 
occurred.  But  on  one  occasion,  in  the  midst  of  an  extremely  active  mar- 
ket, an  advance  of  this  charocter  was  applied  for  of  more  than  usual 
magnitude.  For  the  purpose,  ostensibly,  of  filling  contracts,  the  mer- 
t'.  mt  required  to  proceed  to  Chicago  to  purchase  the  required  quantity. 
Four  or  five  days  would  have  Iwen  sufficient  for  the  purpose,  and  by  that 
time  he  was  expected  to  return  and  deposit  the  bills  of  lading. 

But  he  failed  to  appear  at  the  expected  time.  After  a  further  delay 
of  one  or  two  day«,  his  h.nnfcer!i  became  uneasy,  especially  on  hearing  that 
a  gigantic  "comer  in  wheat"  was  in  progreii. 


RANKINO    AXD    COMMKRCK. 


He  hud,  howt-vrr,  nrver  liecn  known  to  taki'  pnrt  in  Anything  of  the 
kind,  nnd  the  nnrniinru  WM  not  trtioaa. 

A  frw  morr  dnvK  rlnpird,  when  hr  ngnln  tntrrrd  the  hjink.  Hlf 
•ppeiirancr  nt  nnrr  mrltrd  •tlcntion.  Hii  face  lad  ^  Irrrihir  hagitard 
esprcMlon,  nupnri-nlly  from  cxpitemrnt  and  Iok«  of  ilrrp;  nnd  a  ind  »tory 
he  had  to  tril.  ilr  had  hrought  no  bilU  of  ladirg;  hr  had  loit  the  wliole 
of  the  money  advanerd  to  him  and  all  hil  active  capital  tn  addition.  In 
a  moment  of  weahneM  In  had  l)een  induced  tj  join  in  the  huge  "cornrr" 
that  wai  In  progrem,  and  to  depoiit  the  inonejr  that  had  been  advanced 
to  him,  ai  hii  ihare  In  the  operation.  For  a  day  or  two  it  ■eemed  a>  if 
he  would  roon-  than  double  hii  money ;  but,  as  is  generally  the  caie,  the 
bubble  bunt  juat  at  the  ■peculation  wai  maturing.  Every  man  engaged 
in  It  waa  ruined,  he  himielf  Included. 

He  made  all  the  reparation  in  liii  power.  He  had  no  oth.r  creditor 
than  lii»  liankir«.  .uul  In  lliii"  he  gnvi-  n  niiirtgngr  on  nil  the  pniperty 
he  iKnai'ssi'd.  including  i  Imndsonie  rmidrnci-.  Shortly  iifl<rward«  he 
left  the  city. 

The  fact  w:is,  th.-it  lie  was  utterly  ntilwiuird  to  meet  hifl  confreres  on 
'Change  after  luch  a  fiasco.  .\nd  after  nalizing  their  lecurity,  the  bank 
made  the  heaviest  loss  it  had  known  for  years. 

He  went  to  Chicago.  There  he  earned  a  precarious  subsistence  for 
about  a  year,  after  which  he  suddenly  disappeared.  N'one  of  his  friends 
knew  what  had  become  of  him ;  but  a  few  days  afterwards  his  body  was 
fo.md  Coating  about  in  New  York  Bay— a  terrible  end  to  ii  once  most 
promising  and  prosperous  cirecr. 

.\NOTHRit  Disastrous  Speci'lation  in  Grain. 

In  another  case  in  the  same  line  of  business,  a  failure  look  place  from 
R  diffen-nt  cause. 

In  a  certain  commercial  city  of  this  continent  a  tu.Tii  well  on  in  years 
was  often  noticed  at  a  certain  period  in  the  last  century  as  haunting  tlie 
purlieus  of  'Change,  having  a  strangely  shabby,  broken-down  appear- 
ance. 

He  would  occosionolly  ask  his  friends,  and  sometimes  even  his  former 
bankers,  for  a  small  loan,  telling  them,  with  an  eager  face  and  confident 
air,  that  the  market  in  some  staple  commodity  was  in  such  a  condition 
that  an  advance  was  certain.  There  was  a  handsome  profit  in  sight.  It 
was  a  sure  thing.  The  speculation  was  safe,  and  with  a  few  hundred 
dollars  at  risk,  he  had  a  certain  prospect  of  making  thousands. 

Nobody  doubted  his  truthfulness  or  honesty.  But  they  would  not 
lend  him  any  money. 

The  story  of  his  fall  from  a  higher  position  in  the  business  world  it 
an  instructive  one.  The  circumstances  passed  under  my  own  observation ; 
as  did  those  just  related. 

In  the  year  18 —  an  extraordinary  rise  took  place  in  a  leading  tUple 
of  the  Canadian  grain  trade.     This  person  had  been  engaged  many  ycar» 


BANKING    AND    COMMERCIAL    tOSSEti. 


3^5 


tn  that  cproial  branch,  and  had  met  with  fair  iuccph.  He  understood 
the  buiinrsf,  had  f[qod  connrctloni,  had  tome  capital,  and  always  main- 
tained an  honorable  rtcord. 

In  this  particular  year  hr  commrnced  buylni;  the  frraln  referred  to 
In  the  customary  ninnncr,  and  continued  for  tome  time  shipping  ai  well 
as  buying,  taking  but  imall  ritkt,  as  was  his  usual  method.  As  tht  price 
was  steadil"  advancing,  hr  uniformly  realised  a  profit  out  of  his  par- 
chases.  Nnturally,  this  developed  a  disposition  to  make  larger  pur- 
chases, and  also  to  hold,  which  at  length  he  determined  to  do,  wanhoni- 
ing  the  grain  in  independent  warehouses  and  obtaining  advances  thereon 
from  his  bankers.  He  was  adviiid  by  them  from  time  to  time  to  ship 
and  realise  his  profits,  which  were  becoming  considerable.  But  the  mar- 
ket went  on  rapidly  riilng.  A  heavy  speculation  set  in.  Buying  orders 
from  abroad  poiircd  into  tht-  offices  of  dealers,  and  the  price  at  length 
reachrd  a  phenomenal  figure,  such  as  was  never  known  for  the  article 
either  before  or  since. 

Exciting  scenes  occurrtd  daily  on  'Change,  and  a  perfect  fever  of 
speculation  prevailed. 

His  bnnkrrs  now  pressed- more  and  more  strongly  that  he  should  real- 
ise nnd  take  advantage  of  what  was  the  opportunity  of  a  lifetime,  by 
realising  a  profit  which  would  nearly  double  his  capital. 

He  was  wise  enough  to  adopt  their  suggestion,  and  on  one  wcU- 
rememb'  red  day,  sold  out  his  whole  stock  at  an  immense  profit. 

His  bankers  congratulated  him  that  afternoon  on  the  sale,  for  it  not 
only  ensured  repayment  of  their  advances,  but  the  prospect  of  a  good 
and  safe  business  with  him  in  the  future  from  his  lorgely  Increased  capi- 
tal. 

The  day  on  which  he  made  the  sale  was  a  day  of  excitement  far  be- 
yond anything  ever  known  ii  the  trade.  The  air  wos  full  of  rumori. 
dealers  were  buoynnt  beyond  all  reason,  and  the  price  went  on  advancing, 
on  this  one  day,  by  "leaps  and  bounds."  The  ban'c  congratulntcd  itself 
that  their  customer  at  any  rate  had  escaped  from  the  vortex ;  and  when  he 
made  his  oppearancc  next  morning,  supposed  he  would  hand  In  cheeks 
for  his  advances,  with  the  large  profit  he  had  realised  in  addition. 

Conceive,  then,  the  disappointment  and  vexation,  indeed  the  onger 
of  the  bank,  on  learning  that  after  selling  out  his  stock,  and  realizing 
practieally  a  fortune,  he  had,  in  market  phrase,  "bought  in  again,"  and 
was  now  holding  as  niiich  of  the  groin  as  ever!  After  getting  safely  out 
of  the  vortex,  he  had  been  caught  by  the  spirit  of  speculation  then  domi- 
nating the  market,  and  plungtd  in  again. 

The  indignant  remonstrances  of  his  bankers  produced  no  effect.  He 
was  convinced  that  the  market  would  rise  still  higher;  that  he  would 
make  a  still  larger  profit,  and  was  deaf  to  all  advice  and  warning. 

It  was,  however,  at  that  moment,  more  hit  aff"air  than  the  bank'ti  for 
its  margin  was  very  large,  and  the  market  would  have  to  fall  to  what 
•etmed  an  imposeible  extent,  before  thry  could  be  affected. 


521 


BANKING   AND    COMMERCE. 


Vhat  followed  may  be  briefly  told. 

From  that  day  the  market  began  to  decline.  The  decline  went  on 
•tendily.  He  persuaded  himielf,  however,  that  there  would  loon  be  a 
reaction,  and  that  the  price  would  go  higher  than  ever.  Nothing  could 
flhake  that  con\'iction. 

The  decline  proceeded  as  rapidly  as  the  rise  had  done,  but  he  could 
not  be  persuaded  to  sell. 

The  bank  could  not  reasonably  exercise  the  "power  to  sell"  contained 
in  their  securities,  so  long  as  the  margin  continued  so  good.  Therefore 
week  by  week  he  was  allowed  to  take  his  own  course.  But,  as  is  often 
the  case  under  such  circumstances,  he  became  utterly  demoralized  by  the 
rapid  disappearance  of  his  profits.  He  continued  desperately  to  hope 
against  hope;  until  at  last  the  bank,  seeing  that  the  margin  was  rapidly 
disappearing,  gave  the  usual  notice,  took  possession  of  the  grain,  placed 
It  on  the  market,  and  realised. 

The  market  fell  steadily  and  rapidly  during  the  process;  and  the 
final  result  was  that  the  net  amount  realized  from  the  grain  was  actually 
leti  than  the  advancea  on  it. 

The  man  was  ruined  beyond  redemption.  The  bank's  loss  was  con- 
siderable, but  for  the  merchant  the  event  vas  fatal. 

From  that  time  he  never  held  up  his  head.  He  became  utterly  unfit 
for  business,  disappeared  from  the  scene  of  his  misfortune,  and  finally 
subsided  into  a  melancholy  wreck,  a  terrible  example  of  the  folly  of 
eagerly  grasping  at  the  last  dollar  of  profit,  and  so,  according  to  the  old 
fable,  by  aiming  at  a  shadow,  losing  the  substance. 

The  grain  trade,  perhaps  more  than  any  other,  requires  a  particularly 
cool  bead,  and  what  may  be  called  a  moderation  of  spirit,  to  enable  suc- 
cess to  be  achieved  in  it.  In  almost  every  considerable  centre  of  this 
branch  of  commerce  are  to  be  found  such  wrecks  as  the  foregoing;  and 
it  may  be  laid  down  almost  as  an  axiom  in  this  business  that  the  man  who 
•epks  to  make  large  profits  out  of  a  single  venture,  will  inevitably  be 
overtaken  at  som*-  time  in  his  career  with  bankruptcy  and  ruin. 

One  of  the  most  successful  men  who  ever  carried  on  this  business  in- 
variably acted  on  the  principle  of  never  grasping  at  the  last  percentage 
of  profit  in  a  given  line  of  operations,  and  continued  to  the  day  when  he 
went  out  of  the  trade  altogether,  a  prosperous  and  successful  man. 

Another  example  of  commercial  and  banking  loss  in  this  exciting  but 
difficult  trade  differs  from  both  the  preceding. 

At  a  certain  point  in  the  ninittecnth  century  no  name  was  more  promt- 
nently  known,  both  on  this  side  the  Atlantic  and  in  Europe,  than  that  of 
a  large  grain  merchant  in  a  certain  much-frequented  seaport.  His  op- 
erations were  legitimate,  in  one  sense,  namely,  that,  unlike  speculator! 
on  margin,  he  handled  the  actual  grain,  purchasing  and  shipping  from 
westprti  centres  of  production  to  merchants  and  millers  ia  Europe.  Hit 
operations,  at  times,  were  so  large  that  he  could  furnish  the  whole  cargo 


BA?;KING    AXD    commercial    losses.  223 

of  leveral  steamen  at  once.  Many  merchants  and  millers  in  Europe 
looked  to  him  for  supplies.  Inland  steamers  were  supplied  by  him  with 
a  constant  succession  of  cargoes  during  navigation.  Cables  and  tele- 
grams alike  were  pouring  into  his  offices  continually,  and  his  bank  ac- 
count was  one  of  phenomenal  activity.  His  capital  was  sapposed  to  be 
large;  but  his  operations  altogether  baffled  the  calculations  of  more  mod- 
erate men  In  the  trade.  They  despaired  of  following  out  the  results;  bat 
amongst  themselves  had  shrewd  suspicions  that,  at  some  time  or  other,  a 
heavy  coUnpse  would  ensue.  And  ensue  it  did.  It  came  about  in  this 
wise. 

In  the  midst  of  a  certain  season,  known  to  be  one  of  heavy  depression 
in  the  trade,  his  bankers  demanded  a  more  exact  statement  of  the  stores 
of  grain  he  held,  and  the  cargoes  he  had  under  way,  as  well  as  the  state 
of  his  account  with  European  correspondents. 

On  this  statement  being  examined,  it  became  evident  that  he  was 
insolvent. 

The  advances  from  his  bankers  were  nominally  covered  by  securitiest 
but  investigation  showed  that,  in  many  cases,  the  so-called  securities  were 
of  an  illusory  character- 
Large  quantities  of  grain,  represented  as  being  stored  in  a  certain 
mill,  or  in  process  of  shipment,  were  not  to  be  found. 

Properties  in  the  shape  of  mills,  ships,  etc.,  were  found  to  be  worth 
a  mere  fraction  of  the  values  he  had  placed  upon  them. 

When  he  had  passed  into  insolvency,  and  a  thorough  investigation  of 
his  affairs  was  made  by  a  committee  of  creditors,  it  became  evident  that 
his  business  for  years  had  been  nothing  more  than  a  continued  course  of 
heavy  "plunging."  He  had  gone  on  recklessly  making  immense  pur- 
chases, and  shipping  a  large  series  of  cargoes  across  the  Atlantic  on 
consignment,  conducting  his  whole  business  as  if  it  were  a  game  of 
chance.  The  only  difference  between  his  operations  and  those  of  a  mere 
■peculator  on  margin  was  that  he  actually  handled  the  grain. 

Fortune  sometimes  favored  him;  for  his  books  showed  that  at  the 
close  of  some  seasons,  he  had  a  large  surplus  of  capital.  But  more  fre- 
quently he  closed  the  year  in  a  state  of  insolvency. 

How,  then,  it  may  be  asked,  did  he  keep  himself  afloat? 

The  answer  is  to  be  found  in  the  condition  of  his  affairs  at  the  close, 
vis.,  that  there  were  in  the  hands  of  his  banker  documents  representing 
large  quantities  of  grain  that  had  passed  out  of  existence,  on  which  he 
Iiad  obtained  advances,  but  which  had  been  shipped  without  such  advances 
being  retired,  a  state  of  things  which  every  banker  doing  business  in 
seaport  centres  knows  to  be  possible  when  numbers  of  cargoes  are  con- 
stantly shipped. 

The  business  was  wound  np.  The  estate  paid  scarcely  any  dividend 
And  OS  in  the  former  cases,  the  great  speculator  disappeared  from  the 
scene  of  his  ambitious  projects  and  never  returned. 


S^6 


BAXKIXG    AND    COMMERCE. 


Advancea  on  Warbhousi  Receipts. 

it  DiBT  be  said  that  the  feature  of  Canadian  law  which  makt-s  it 
legal  for  bankers  to  advance  money  on  warehouse  receipts  given  by  9 
person  for  his  own  property  is  responsible  for  such  disasters  as  the  fore- 
going. 

There  can  be  no  doubt  that  such  receipts  are  of  far  less  value  as 
security  than  those  given  by  a  warehouseman  for  goods  placed  in  hfi 
charge  by  another.  But  no  banker  is  obliged  to  make  advances  on  such 
documents,  and  it  is  doubtful  whether  in  this  case  advances  were  made  on 
this  kind  of  a  warehouse  receipt  at  the  outset. 

It  is  more  than  likely  that  the  shortage,  so  to  speak,  arose  in  the 
processes  by  which  grain  is  transferred  from  railway  to  steamer,  from 
canal  boats  to  warehouse,  from  inland  steamers  to  ocean-going  vessels,  in 
all  which  opt- rations  there  are  inter\'al8  of  time  during  which  merchandise 
is  in  a  state  of  transition,  and  actually  covered  by  neither  one  kind  of 
document  nor  another.  The  amount  of  grain  in  transition  when  opera- 
tions are  Inrge,  in  an  active  shipping  season,  is  of  far  greater  magnitude 
than  any  outsider  would  deem  possible. 

Risks  of  the  Grain  Bl'sinbss. 

The  commercial  and  banking  lossts  mentioned  in  this  chapter  all  arose 
in  connection  with  one  line  of  business,  viz.,  the  export  grain  trade;  and 
all  experience  shows  this  business  to  be  one  of  the  most  risky  in  which 
any  man  can  engage.  Yet  it  is  one  of  the  most  nseful  of  all  occupations, 
for  the  supply  of  food  to  the  people  of  whole  nations  depends  upon  it 

If  such  a  thing  could  be  conceived  as  that  commercial  men  would  be 
so  afraid  of  the  risks  of  the  trade  that  they  would  not  engage  in  it,  a 
good  part  of  the  ptople  of  the  world  would  starve.  Th/-*,  however,  is 
inconceivable.  But  it  is  a  fact  that  the  average  rate  of  profit  in  the  bust- 
ness  of  providing  the  staple  food  of  mankind  is  so  small  that  nothing 
but  the  closest  calculation  and  most  exact  management,  combined  with 
coolness  of  judgment,  can  carry  a  man  successfully  through  its  risks. 

In  looking  over  the  results  of  hundreds  of  millions  of  operations 
engaged  in  by  exporters  and  dealers  in  breadstuffs  throughout  the  world, 
it  is  somewhat  melancholy  to  notice  how  few  of  the  men  who  have  been 
engaged  in  the  trade  have  derived  any  permanent  benefit  from  it.  Bene- 
fit there  has  been  to  the  great  mass  of  consumers,  but  the  result  to  the 
men  who  have  fed  these  millions  has  almost  invariably  been  bankruptcy. 

In  examining  dispassionately  cases  like  the  foregoing,  and  endeavor- 
ing to  draw  snme  useful  lessons  therefrom,  both  for  bankers  and  their 
customers,  it  is  impossible  to  avoid  a  conviction  that  some  blame  must 
fall  upon  the  banks  concerned. 

Let  them  be  taken  one  by  one.  The  bank  in  the  first  case  advanced  a 
very  Urge  sura  in  actual  nioncy  on  tlic  statrtaent  of  a  customer  that  he 
was  about  to  make  large  purchases  in  a  distant  grain  centre.  But  with 
such  knowledge  of  business  as  bankers  onght  to  possess,  and  the  exerdse 


BAXKING    AND    COMMERCIAL    LOSSES. 


of  shrewd  rcHection,  they  should  haw  sern  that  it  was  not  necessary  for 
a  customer  to  go  to  that  ninrket  with  money  actually  in  hand.  There  wat 
no  need  for  the  bank  to  hand  their  customer  this  money ;  and  the  fact  that 
thty  were  asked  to  do  it  should  have  rendered  them  Buspiciotu.  The 
proper  coursr  for  the  nurehont  would  have  been  to  go  to  Chicago,  to  pur- 
chase the  required  quantity,  to  order  it  to  be  shipped;  and  for  the  seller 
to  draw  u|>on  him  at  short  sijjht  with  bills  of  lading  attached.  The 
bank  could  have  udvanc<d  the  money  to  take  up  the  drafts  with  safetv; 
for  they  would  have  the  bills  of  lading  as  security.  This  would  have 
demonstrated  to  the  bank  that  their  money  was  rtpresented  by  grain; 
but  to  ask  for  a  large  amount  of  money  for  the  purpose  of  taking  it  to 
Chicago  should  have  suggesttd  that  an  improper  use  might  be  made  of 
it.  They  should  have  known  that  it  might  be  put  up  as  a  margin  in  a 
speculation,  or  paid  in  as  a  share  in  a  huge  "cc.ner;"  which  last  proved 
actually  to  be  the  case,  to  the  ruin  of  the  merchant  and  loss  to  the  bank. 

In  the  second  case,  where  a  bank's  customer  refused  to  sell  grain  on 
a  falling  market,  while  there  was  still  a  heavy  profit  m  the  transaction, 
it  is  evident  that  the  power  of  sale  should  have  been  exercised  earlier 
than  it  was. 

The  case  was  one  for  prompt  and  decisive  action,  when  the  bank  had 
so  foolish  a  customer  to  deal  with.  No  considerations  of  regard  for  a 
man's  feelings,  or  fear  of  giving  offence,  should  have  been  allowed  to 
prei-ail  at  such  a  time.  Even  a  regard  for  the  customer's  own  intereit 
might  have  led  the  bank  to  a  firm  course  of  action;  for  undoubtedly  a 
customer's  interest  is,  at  times,  best  sened  by  a  refusal  to  lend  money, 
or  by  insisting  upon  payment  at  the  proper  time. 

After  all,  what  the  bank  was  bound  to  consider  was  its  own  interest : 
and  if  it  bad  followed  a  course  of  action  best  suited  to  that,  it  would 
have  saved  itself  from  loss,  and  its  customer  from  ruin. 

In  the  third  case,  the  bank  was  to  blame  in  making  continuous  ad- 
vances to  a  customer  whose  operations  repeatedly  suggested  the  necessitj 
of  a  close  inquiry  as  to  his  methods  and  position,  which  inquiry  would 
have  demonstrated  that  his  methods  were  unsound,  and  his  operation! 
nothing  but  "plunging."  In  this  case  the  bank  should  have  insisted  upon 
tangible  and  solid  security  to  be  furnished,  so  that  its  advances  might 
at  all  times  be  covered,  in  default  of  which  it  should  have  closed  the 
account;  and  no  consideration  of  the  convenience  of  the  customer,  or  the 
indirect  advantage  to  trade,  or  the  profitableness  of  the  apparently  valu- 
able account,  should  have  prevented  such  action  being  taken. 

The  above  criticism  is  all  founded  on  the  theory  that  a  banker  should 
be  sufficiently  acquainted  with  the  general  coarse  of  tht.  trade  of  hii 
customers  to  be  able  to  judge  whether  they  are  carrying  on  bosineH 
judiciously  or  not.  That  this  is  a  sound  theory  will  hardly  be  disputed 
by  those  competent  to  pass  judgment. 


m;. 


:l!-;i 


ill 


CllAPTEB  XXIX. 

LOSSES  IN  CONNECTION  WITH  THE  IMPORTING  TRADE  AND 
OTHER  LINES  OF  BUSINESS. 

How  A  Bank  Lost  Thboioh  1'aii.uiie  op  as  Impobtino  Hoi'si— 
Benevolence  Not  an  Attiiihute  of  B^^•KINO— A  Remabkable 
Faili'be — The  Lcmpeb  and  Timbkb  Tbade. 

IN  the  preceding  chapter  instiincei  have  been  given  of  Iomm  arising 
out  of  one  branch  of  our  export  trade,  vl«.,  that  in  grain.     In  the 

pretent  chapter  the  aul-jeet  of  loMea  in  other  linea  of  bnaineM  will 
jc  considered.  .      .    .u 

There  is  a  radical  difference  between  the  modes  of  operaUon  in  thM 
lines  of  business  and  those  in  the  grain  trade.  The  latter  deals  with  the 
prime  necessity  of  human  life.  QuoUtiona  of  its  value  are  made  eve^ 
day  in  the  commercial  centres  of  the  world.  lU  operations  are  carried 
on  and  reviewed  in  the  produce  exchanges  of  commercial  ciUea;  the  re- 
sulU  are  public  property,  and  as  the  trade  is  in  staples  of  absolute 
necessity,  transactions  are  large  and  the  percentage  of  profit  smaU.  Boi 
the  importing  trade  of  this  continent  deals  with  a  multitude  of  artic'  » 
of  which  the  values  are  never  publicly  quoted,  and  the  dealing  in  which 
requires  special  education  and  experience. 

Moreover,  the  business  of  importing,  and  the  wholesale  dealmg  in 
imported  goods,  can  scarcely  be  entered  upon  without  more  or  1.  J  capi- 
tal and  business  luiowledge.  Its  resulte,  talcen  broadly  and  gintrally 
have  been  much  more  satisfactory  '.o  those  who  have  carried  it  on. 

Yet  it  cannot  be  denied  that  n  many  instances,  from  various  causes, 
many  a  career  that  at  one  time  loolied  promising  has  ended  in  disaster 
and  bankruptcy,  entailing  at  Umes  heavy  losses  both  to  banks  and  to 
other  traders.    Let  us  take  one  or  two  examples  of  this  on  this  continent 

In  the  earlier  days  of  Canada  a  large  house  in  the  importing  trade 
had  risen  in  a  commercial  centre  from  comparatively  small  beginnings 
nnUl  its  operations  extended  over  a  vast  extent  of  territory  and  popola- 
Uon.  The  firm  had  acquired  high  credit.  It  could  buy  at  the  best  termi 
in  foreign  markets,  and  its  selection  of  goods  -as  such  as  to  attrai*. 
customers  from  all  parts  of  the  country.  It  thus  gradually  came  to  have 
almost  a  mononolv  of  the  business  of  many  storekeepers  in  connlry 
towns,  who  found  the  firm  most  accommodating  in  their  mode  of  doing 
business;  (fiving  credit  liberally,  being  lenient  in  collecting,  and  always 
ready  to  consider  favorably  proposals  for  renewing  biUs  or  extending 
credit  if  sntijf.-ietory  security  was  given. 

Nalurallv,  under  these  circumstances,  the  house  came  to  have  a  num- 
ber of  enslomers  who  leaned  upon  it  for  supplies  and  were  of  that  proSt- 


LOSSES    IX   OTHER    MNES   OF    BUSINESS. 


299 


•We  kind  who  nev<?r  objrctrd  to  pHcrs.  Their  cuKtomers  in  many  caiet 
gave  security  to  the  house  on  land  n:id  buildings,  the  land  being  often 
uncleared  lots  in  the  forest,  or  the  partially  cleared  fanai  of  struggling 
ftttlen.  The  properties  in  many  cases  had  already  been  mortgaged  for 
loam  or  unpaid  purchase  money,  but  the  house  took  the  srcurity  for 
what  it  was  worth;  generally  under  the  impression,  eommon  in  thote 
early  days,  that  real  property  was  sure  to  advance  in  value.  The  security 
would  thus  become  more  iingible  year  by  year. 

Under  this  condition  of  things,  the  amounts  owing  by  the  circle  of 
dependents,  for  such  they  were,  tended  continually  to  increase;  until  in 
many  cases  it  became  an  absolute  necessity  to  carry  the  account  on,  uih 
^esa  the  customers  were  allowed  to  go  on  into  insolvency.  When  men  in 
the  retail  trade  arrive  at  this  stage,  they  cannot  get  credit  elsewhere; 
they  must  be  carried  on  or  stop. 

The  ordinary  bank  account  of  a  firm  in  their  line  of  business  would 
consist  of  the  discounting  of  customers'  bills  given  in  payment  of  goods, 
and  purporting  to  be  payable  on  an  expressed  day. 

So  long  as  these  bills  represented  goods  in  the  active  course  of  buy- 
ing and  scllinfi;  reprcsrnting,  that  is  to  say,  a  ninving  account,  thiir  piy- 
ment  with  perhaps  one  renewal  could  be  depended  upon.  With  many  of 
the  smaller  customer?  of  the  house  this  continued  to  be  the  case.  But 
with  regard  to  the  class  of  customers  before  named  (which  was  an  in- 
creasing one)  their  bills  came  to  represent  more  and  more  mere  dead  stock 
on  the  shelves,  and  were  kept  current  by  renewals.  Especially  was  thli 
the  case  with  that  portion  of  their  debt  for  which  security  had  been  given. 

Thus,  then,  their  banking  accounts  (for  they  ultimately  had  three) 
would  present  this  appearance:  that,  while  it  contained  the  paper  of  ■ 
large  iiiimbrr  of  persons  for  small  amounts  representing  active  budinefl^ 
it  also  contained  the  bills  of  a  certain  number  of  persons  for  far  larger 
■mounts,  representing  what  are  known  as  "supply  accounts,"  on  mere 
dead  stock. 

It  has  been  said  that  both  the  number  of  this  class  of  acoountH  and 
the  sums  due  by  each  went  on  steadily  increasing;  for  the  method  of  the 
house  naturally  led  to  their  ordinary  eutiomert  drifting  into  thit  undeiira- 
ble  claxa.  So  long  ns  the  prosperous  tinu's  lasted,  while  motuy  w.ia 
plentiful,  and  the  credit  of  the  firm  good,  the  account  being  large,  active 
and  profitable,  the  several  bankers  of  the  firm  allowed  this  state  of  things 
to  continue.  But  at  length  the  usual  turn  in  the  tide  took  place.  Bad 
harvfsts  made  money  tijilit.  A  great  tide  of  revulsion  set  in.  necessitat- 
ing severe  curtailment  of  discounts  by  bnnks.  The  firm  was  called  upon 
for  considerable  rediictinns  by  each  nf  its  bankers,  while  the  creditors 
of  the  house  in  Europe  and  elsewhere,  being  advised  of  the  unfavorable 
turn  of  affairs  on  this  side  of  the  Atlantic,  also  called  for  closer  payment 
of  invoices.  The  firm  was  thus  pressed  from  two  sides  at  once,  and  was 
under  the  necessity  of  taking  strenuous  measures  with  its  customers  ia 
turn,  insisting  upon  their  accounts  being  reduced,  or  paid  np.    But  redo^ 


BANKING    AND    COMMERCE. 


tion  in  timet  of  monctarr  prfssure  ii  almost  impoHiblr,  as  Mr.  Gilbftit 
has  shown  In  his  admirable  work  on  banking.  The  retailors  endeavored 
tit  collect  in  turn  from  their  customers,  and  a  general  condition  of  di»* 
turbance  ensued.  Some  asked  extensions,  offering  such  security  at  they 
had.  Others  went  into  insolvency.  The  selling  off  their  stocks  by  an 
assignee  tended  to  ombarraits  other  flrms,  and  thus  thingt  went  on  drift 
ing  from  bad  to  worse.  Before  this  had  occurred,  the  banki  had  tcruti 
nizod  the  bills  given  by  the  firm  with  unusual  care,  and  realized  that  the 
amount  of  paper  given  by  certain  customers  was  far  beyond  what  was 
IfEitimatf.'" 

Thus  when  the  bankers  of  the  firm,  in  the  sharp  stress  of  monetary 
pressure,  came  to  sit  in  judgment  npon  the  bills  current  in  the  account, 
they  were  vexod  beyond  raeosure  to  find  what  large  amounts  of  the  paper 
of  certain  storekeepers  were  afloat.  Men  whose  whole  sales  in  a  year 
were  only  some  $50,000  had  bills  running  for  the  whole  of  that  sum  o- 
even  more. 

A  scrutiny  of  the  securities  was  quite  as  unsatisfactory.  Numbers 
of  mortgages  supposed  to  be  on  cultivated  farms,  with  buildings  and 
orchards,  wer«  found  to  be  on  lands  only  partially  cleared  with  nothing 
but  a  shanty,  or  log  barns  on  them,  and  the  land  itself  not  wholly  paid 
for.  Under  these  circumstances  the  firm  went  into  insolvency.  As  the 
realization  of  the  assets  went  on,  the  land  often  turned  out  to  be  barely 
worth  the  first  mortgage,  making  the  bank's  security  worthless.  Mort- 
gages on  property  in  villages  or  towns  were  in  many  cases  equally  de- 
lusive. Vacant  lots,  valued  at  high  prices  under  some  "boom"  influence, 
wooden  buildings,  shops,  dwellings  or  bams,  when  brought  to  sale  after 
foreclosure,  realised,  when  charges  were  paid,  but  a  mere  fraction  of  the 
nominal  value  of  the  mortgage. 

Whilst  these  processes  wei?  advancing  the  revulsion  in  the  commercial 
sphere  that  had  set  in  went  on  deepening  ye.ir  by  year.  Abundant  har- 
vests, sold  at  high  prices,  which  had  much  to  do  with  the  development  of 
the  boom,  were  succeeded  by  a  succession  of  bad  years.  Hence  a  heavy 
fall  in  the  value  of  properties,  and  a  continued  series  of  commercial 
failures  both  in  the  wholesale  and  retail  trades.  The  terrible  experiences 
of  the  United  SUtes  in  1897  were  repeated  all  over  Upper  Canada.  Afc 
might  naturally  be  expected  nearly  the  whole  of  these  dependent  persons 
failed  when  the  supply  house  failed,  and  their  estates  yielded  very  mod 
erate  dividends. 

This,  of  course,  reacted  upon  the  dividend  paid  by  the  great  firn. 
itself.  Upon  the  various  hankers  of  the  firm  finally  fell  the  task  ol 
dealing  with  and  winding  up  these  complicated  estates.     This  was  a  mat- 

Tl  I^t  it  not  Furprlwe  the  reader  that  thin  hnd  not  been  done  before.  B.ink.Tf. 
like  other  mortals,  are  affected  by  chanting  cfrcumatancei.  In  prosperouB  time*, 
when  bUBlnesB  Ib  BWln»lnB  along  with  activity,  a  banker's  Judgment  is  apt  to  be 
anected.  An  amount  that  would  look  dang"n.uB  when  money  U  Hcaiw,  Is  passad 
by  almost  without  notice  when  money  !•  plrntlful.  And  the  courao  of  an  account 
Which  In  timwi  of  pressure  Is  seen  to  be  Illegitimate.  In  times  of  prosperity  ts 
apt  to  be  pnssed  by  iinnnttced 


LOSSES    IN    OTHER    LINES   OF    BUSINESS.  «31 

tCT  of  VMM,  and  the  flnal  result  was  heavy  loss.  As  to  the  firm  itaelf, 
it  passed  out  of  existence.  Its  various  members  became  scattered  hcrf 
and  there.  Some  of  their  old  employees  picked  up  the  scattered  debrta 
of  the  once  widespread  business,  and  met  with  various  degrees  of  lucceu; 
but  the  firm  itself,  once  so  prominent  and  powerful,  has  almost  paueti 
out  of  the  memory  of  the  old  inhabitanU  of  the  city  where  the  name  of 
the  firm  once  commanded  such  high  respect. 

The  above  is  a  typical  instance  of  the  kind  of  failures  that  occurred 
in  the  early  days  of  Canadian  development,  when  the  country  was  only 
half  cleared,  the  real  value  of  land  very  unsettled,  and  few  means  exist- 
ing of  ascertaining  the  true  position  of  reUil  merchants;  and  also  when 
the  true  principles  on  which  credit  should  be  given  were  as  yet  imper- 
fectly understood. 

It  is  true  that  even  in  this  condition  of  things,  some  mercantilt: 
houses  managed  to  thread  their  way  by  dint  of  more  than  ordinary  saga- 
city and  prudence,  combined  with  courage  In  stopping  when  things  looked 
dangerous.  Such  men,  in  various  instances,  accumulated  a  competency 
or  fortune,  which,  with  the  business  they  founded,  has  survived  to  this 
day.  But  the  above  history  is  only  too  true  a  record  of  an  opposite 
kind,  of  which  Canada  in  its  early  days  furnished  mony  unfortunate 
examples. 

Of  an  entirely  different  description  in  most  of  its  particulars,  though, 
like  it  in  it*  general  features,  was  a  failure  that  occurred  in  a  later  period 
of  deep  depression  in  one  of  the  commercial  centres  of  this  continent. 
The  head  of  the  house  was  a  man  who  had  been  well  trained  to  businen, 
and  thoroughly  understood  it  in  all  its  departments.  A  man  of  activity 
and  energy  also,  of  an  enterprising  disposition,  he  had  built  up  a  larg-r 
business  from  small  beginnings,  until  he  stood  in  the  front  rank  of  the 
houses  in  his  own  line  of  trade.  His  capital,  apparently,  had  been 
steadily  growing  until  it  amounted,  as  was  supposed,  to  a  very  large  sum. 
And  so  he  supposed  himself.  He  was  a  man  of  philanthropic  tempera- 
ment, loved  to  help  men  on  in  life,  especially  young  men;  and  had  set 
up  in  business  a  number  of  such  in  various  parts  of  the  country,  who. 
of  course  bought  goods  from  his  firm  exclusively.  As  has  been  shown 
in  another  part  of  this  treatise,  this  mode  of  doing  business  has,  for  a 
time,  great  attractions  on  both  sides.  To  the  merchant  it  gives  an  outlet 
to  his  goods  at  all  times  with  the  least  trouble  and  expense,  and  at  a 
better  than  average  profit.  To  the  retailer  it  affords  an  unfailing  source 
of  supply  of  goods  for  his  shelves,  and  almost  certain  help  when  money 
is  scarce  and  times  diflicult. 

Benetolrnce  Not  an  Attribute  of  Banking. 

Benevolence  is  a  fine  attribute  of  character  in  the  ordinary  walks  cf 

life;  but  a  competent  authority  has  declared  it  to  he  dangerous  and  out 

of  place  when  projected  into  the  sphere  of  banking.     It  is  equally  to 

in  the  sphere  of  commerce;  for  it  renders  it  difficult  for  a  merchant  to 


tM 


BANKING   AND   COMMERCE. 


milt  imiwrtunltin  cilhn  for  more  time,  or  more  goodt,  and  it  prerenta 
him  from  employing  thoic  meuurei  of  enforcement  which  are  at  timet 
ablolutelT  necetsary  to  tlie  lafety  of  bulineu. 

Hardly  ever  vu  there  a  better  exemplification  of  thll  than  In  the 
caac  before  uf.  The  accounti  of  theie  men  who  had  been  ao  let  np 
went  on  imoothly  when  timea  were  proiperoua;  the  only  dlaqnietinjt 
circumitancei  being  that  they  tended  to  grow  larger  and  larger.  Thlt 
tendency  ihould  hn  been  itrennoutly  repreaied,  and  the  acconnti  kept 
within  proper  boundi. 

Bat  unfortunately  for  thia  merchant,  he  waa  In  anch  good  credit, 
that,  aa  it  waa  in  the  cnac  jnat  cited,  he  could  diacount  billa  freely  in 
three  banlu  airaullaneoualy.     Thia  facility  of    obUining  money  blinded 
him  to  the  danger  of  anch  overgrown  credita.     And  the  fact  that  the 
account  waa  carried  on  in  three  placea  blinded  the  eyea  of  hla  bankera 
too.    None  of  them,  in  looking  over  the  diacounta  under  hla  name,  aeemed 
to  have  realiied  the  true  poaition.    Their  own  ahare  of  the  billa  of  theae 
aupply  concerna  did  not  aeem  to  be  large  enangh  to  create  uneaaineaa. 
None  of  them,  apparently,  took  account  of  the  fact  that  the  paper  under 
each  name  required  to  be  multiplied  by  three.     Had  they  done  thia,  they 
could  not  fail  to  have  aeen  how  dangeroua  the  poaition  waa.    Had  there 
been  only  one  account  with  a  well  managed  bank,  it  would  ha»e  been 
impoaaibie  for  anch  a  atate  of  thinga  to  have  arlaen.     No  alngle  bank 
would  have  diacounted  auch  an  amount  of  the  billa  of  theae  houaea,  or  any 
of  them,  aa  waa  diacovered  to  have  been   diatributed  amongat  the  three 
The  tendency  to  overgrown  credita  would  have  been  checked  by  refnaal 
to  diieounl.     But  facility  of  diacounting  proved  the  merchant'a  ruin. 
A  time  of  depreaaion  at  length  aet  in.   Trade  became  bad,  money  acaree, 
coUectiona  difficult.     PaymenU  on  the  billa  of  theae  houaea  became  leaa 
and  leaa,  and  prea."re  for  rcnewala  more  and  more.     Even  then  the 
houae  might  have  been  saved  by  energetic  treatment  being  applied  to 
these   customers,  and   payments   inaiated   upon  before   delivery   of   new 
goods.    But  the  head  of  the  firm  had  not  the  heart  to  do  thia.    He  found 
it  impossible  to  resist  importunity.      Matters  drifted  on   until  the  ac- 
counts due  by  these  parties  and  the  paper  discounted  at  the  three  banka 
rose  up  to  sums  which,  as  owing  by  retailers,  were  simply  appalling. 
Had  these  customers  owed  him  but  five  to  ten  thouaand  doUara,  he  might 
have  been  able  lo  take  them  in  hand,  and  would  not  have  been  afraid 
even  of  their  stopping  payment.     But  as  it  was,  their  accounts  had  run 
up  to  sums  of  thirty,  forty,  and  fifty  thousand;  and  even  in  one  case 
to  such  an  abnormal  figure  as  one  hundred  and  twenty  thousand!    Their 
aggregate   indebtedness   waa   far  more   than   the  whole  capital   of   the 
house.     To  stop  them  meant  ruin.     Matters  therefore  drifted  on,  always 
with  the  same  delusive  hope  of  a  turn  in  the  tide  which  would  render 
quiet  liquidation  of  some   of  these  concerns  possible.     But  depression 
went  on  deeiwning,  and  banks  as  well  as  merchants  feltjhe  pressure  of 
it.     They  were  comlielled  to  curtail  their  discounts.     ""^     "-—  "— "- 


The  three  banks 


LOSSES   IN   OTHER    LINES  OF   BUSINESS. 


concerned  all  applied  preimire,  but  there  wu  no  effectual  retponie. 
There  could  not  be;  and  tlnally,  the  finn,  overborne  by  the  weight  of 
these  ntaMcf  of  money  due  to  them,  that  would  take  yeara  to  collect, 
•topped  payment,  placed  their  affain  in  the  handa  of  an  aiilgnee,  and 
were  compelled  to  compromiie  with  the  tame  creditors  who  had  beea 
allured,  only  a  year  or  two  before,  that  the  home  had  a  capital  of 
hnndredi  of  thousnndi  of  dollan. 

In  thii  case  the  primary  came  of  failure  wai  in  allowing  a  itrong 
initinct  of  benevolence  to  he  carried  into  a  iphere  in  which  it  bad  ntf 
place.    The  lecondary  eauie  wai  the  facility  of  obtaining  diwounta. 

There  ii  thii  further  to  be  Mid,  that  if  the  party  bad  had  to  deal 
with  only  one  banker  and  could  have  ahown  himielf  wlrent,  effectual 
kelp  would  have  been  rendered  him  when  difficult  timei  lapenvned. 
But  co-operation  between  three  wai  impoMible. 

A  RiMARKAaLs  Failure. 

We  will  now  pasi  on  to  a  failure  in  another  line  of  buiineii,  and 
diitinguished  by  more  remarkable  featurei  itill. 

In  a  certain  town  of  Canada  there  lived  in  the  last  generation  a  man 
of  active  habiti,  poHihed  mannen,  and  enterpriaing  diapoaitlon,  who 
wai  a  great  favorite  in  the  community.  But  hii  judgment  waa  unequal 
to  Ilia  enterprise.  He  hnd  failed  to  aucceed  in  one  or  two  poaitiona  en- 
truated  to  him  (not  mercantile) ;  but  lie  waa  one  of  that  atyle  of  men  who 
are  never  daunted  by  adveratty. 

Soon  after  hii  laat  failure  he  conceived  the  idea  of  eatabliihlng  a 
new  induatry  in  the  town,  in  furtherance  of  which  a  contiguoua  water- 
power  could  be  utiliied.  He  borrowed  all  the  money  he  could  from  a 
member  of  hia  family,  bought  the  neceaaary  ground  and  water-power, 
and  made  arrangements  with  a  firm  of  contractora  to  erect  the  baildlngt. 
These  builders  were  men  of  conaiderable  meana,  cuatomera  of  one  of 
the  local  banks,  and  were  in  auch  high  credit  that  paper  bearing  their 
name  could  be  readily  diarnunted  for  conaiderable  amounts. 

The  contract  was  signed,  the  buildings  proceeded  with,  and  month 
by  month  the  proprietor  of  the  new  concern  gave  hia  notea  in  payment 
aa  the  work  proceeded,  which  notea  the  bank  diacounted.  Such  notes 
had  not  a  good  banking  foundation,  aa  will  be  seen,  but  the  local  mana* 
ger,  a  man  of  large  experience  and  known  to  poaieaa  an  intimate  knowl- 
edge of  the  people  of  the  district,  reported  the  parties  to  be  good  beyond 
question.  The  paper  was  therefore  allowed  to  paaa  for  a  time  at  the 
head  office,  with  but  liUle  criticism. 

Aa  the  buildings  went  on,  the  total  amount  of  the  notea  increaied; 
a  hope  however  being  cherished  that  money  to  retire  them  could  be 
obtained  by  borrowing  on  the  new  buildings  when  finiabed.  In  this 
hope  all  parties  were  doomed  to  disappointment.  The  projector,  how- 
ever, went  on  cheerily  in  his  usual  sanguine  way,  and  the  only  partiea 
that  felt  uneasineaa  were  the  contractora  and  the  bank  manager.     The 


ii  iJr 


en  BANKING   AND   COMMERCE. 

lUbilitT  of  Ihe  conlrarton  to  the  bank  u  Mdonen  hid  gradaallj  In- 
cremcd  to  nn  nlinning  lum,  «nd  the  maniger  of  the  bMik  begui  to  feu 
for  hli  own  poiillon,  In  cue  hl>  •dv«ncei  did  not  turn  out  well. 

It  WM,  howerer,  ntctujrj  to  go  on;  for  If  itoppage  had  enlued. 
all  partlea  would  have  been  left  with  that  moat  undeairable  of  all  aaaete, 
an  unfinlihed  pUe  of  bulldlnga.  At  they  atood,  they  had  already  c«M 
more  than  three  timea  aa  much  ai  It  wai  auppoaed  would  be  tulSdent  to 
finiib  them.  But  many  thontanda  of  doUara  were  itUl  required  before 
they  could  be  ready  for  the  plant,  machinery  and  power.  The  bulldlnp 
however,  were  flnlthed  at  laat.  But  the  projector'i  calculation!  aa  to 
the  coat  of  the  plant  were  juat  aa  crroneout  aa  they  had  been  with  regard 
to  the  bulldlnea.  But  plant  and  machinery  mual  be  procured  and  placed: 
after  which  there  might  be  n  poiaiUlity  of  the  advancca  being  In  aome 
way  recouped.  At  all  eventa  the  buaineaa  might  begin  to  earn  money. 
So' advance,  went  on,  and  an  apparently  (inely-eqnipped  establiahment 
itood  on  the  ground.  But  no  money  could  be  borrowed  on  It  unUl  it 
had  proved  lUelf  capable  of  making  profit  for  Ita  ownen  By  thli 
time  it  became  evident  that  the  bank  practically  owned  the  concern 
The  advancea  were  repreaented  by  notea  that  were  far  Indeed  beyond 
the  ability  of  the  partlea  to  pay,  and  the  only  hope  of  good  reiulta  waa 
in  the  carrring  on  of  the  buaineaa.  The  unfortunate  manager  therefore 
begird  the"  head  office  to  allow  htei  to  adrance  more  money  to  buy  ilock. 
and' with  a  deapiiring  aort  of  hoping  agalnat  hope,  thia  waa  coniented 
to.  Thia  atock  waa  not  only  a  atock  of  raw  material!,  but  of  animala 
to  conaume  the  refuae. 

Manufacturing  then  began,  but  the  product  waa  not  aatiafactory. 
Conalderahle  amonnta  of  the  gooda  were  returned  by  purchaaera,  or 
heavy  reducUona  required  from  involcea.  The  promoter,  who  maintained 
hit  iheerfolneaa,  even  under  theae  clrcumatoncea,  now  anggetted  that 
certain  alteraUona  be  made  In  the  machinery,  and  managed  to  perauade 
the  bank  to  increaae  ita  advance!  for  the  pnrpoac. 

Thua  matter!  went  on  for  about  a  year.  The  concern  never  made 
a  doUar  of  profit.  The  burden  of  intereat  on  the  huge  advancea  ground 
tlie  buainett  tlowly  down,  and  cauted  the  advancea  to  go  alowly  op. 
Finally  the  bank  authoritiea  determined  to  bring  the  affair  to  a  atop. 
h  wat  Impoaalble  tell  the  eaUblUhment;  for,  notwithatanding  the 
money  tpenl  upon  u,  it  had  not  been  weU  planned  and  never  could  have 
made  money.  The  ttock  of  raw  material  waa  worked  up,  the  product 
aold  off,  ao  were  the  animala,  everything  wat  realiaed  on,  and  the  place 
finallT  diaroantled,  to  remain  to  thU  day  an  object  leaaon  to  paaten-by 
of  the  folly  of  projecting  a  great  enterprite  without  meana,  and  of 
lending  huge  auma  of  money  without  tangible  aecurity. 

But  when  the  tloppage  Iranapircd,  a  very  ainguhir  circumttonce  came 

to  light. 

rj)ng  before  the  final  caUttrophe  the  wrath  of  the  bank  aothoritiet 
had  burtt  on  the  head  of  the  unfortunate  manager,  and  It  waa  Intimated 


IX)RSES    IN*    OTHER    UNES   OF    Bl'SINFSS.  S95 

that  unlcft  he  could  grt  the  awounl  Hcurrd  he  wouM  lote  hii  puiition. 
Upon  thta  he  Hinght  an  Intcrrlew  with  hii  frienda,  who  romprtaed  nearly 
everj  nan  of  poaltion  in  the  town,  and  hta  Influence  was  lo  great  that 
many  of  them  were  perinaded  to  annme  a  ahare  of  the  aecuritj  for  the 
debt.  Some  of  thetn  endorsed  for  99*000;  aome  for  more  (large  auma  tn 
that  locillty)  and  thua  ammed  obligatloni  thej  could  111  afford  to  meet 
But  they  had  to  pny  the  whole  amount,  and  aome  of  thrm  were  im- 
poreriihed  for  yean  thereby. 

The  loai  to  the  bank  waa  ronilderably  rrduccd  by  the  aevere  meaaurei 
taken;  but  it  was  atill  rnormout,  conaidertng  the  amount  of  buiineii  to 
he  done  in  the  town.  Indeed  It  waa  ratimated  that  the  profits  of  ten  or 
twelve  good  years  of  the  branch  would  be  swnllowrd  up  by  it. 

As  for  the  parties  themselves,  the  prime  mover  came  out  ni  he  went 
In,  except  that  in  addition  to  being  worth  nothing,  a  heavy  and  uncol- 
lectible load  of  debt  was  registered  against  him.  His  relatives  had  loft 
all  they  had  lent  him;  and  the  endorsers  lost  all  they  had  put  their 
names  to. 

He  could  not.  of  course,  remain  in  a  town  where  every  aecond  man 
he  met  had  lost  money  by  him.  He  therefore  took  a  situation  in  a  dis- 
tant town,  and  passed  into  obscurity.  The  contractors  were  hopel'-ssly 
ruined ;  a  hard  fate  for  men  who  had  always  maintained  an  ur  blem- 
ished reputation,  ijnd  who,  previous  to  that  affair,  had  practically  retired 
with  a  competency. 

The  bank  manager  was  well  on  in  years  at  the  time  of  this  fiasco, 
and  only  retained  his  position  fur  a  short  time  afterwards.  He  also  left 
the  town,  and  never  again  held  up  his  head  in  banking  circles. 

As  to  the  bank,  It  waa  doing  so  well  on  the  whole  that  even  a  loia 
of  this  kind  could  be  written  off  without  attracting  notice. 


FAIt-rRES   AND    I.OflVES   IN   THE   LuMBER   AND   TlHBER    TrADES 

Many  year*  ago  it  was  nmon  for  the  exporters  of  heavy  timber 
from  Quebec  to  procure  >.  .f  es  of  certain  kinds  of  hard  wood  from 
the  forests  of  Michigan  and  Ohio.  This  business  was  one  calling  for 
«)nsiderable  bank  advances  spread  over  many  months  of  time.  It  was 
a  highly  remunerative  one  in  good  seasons,  and  no  ''lan  had  succeeded 
better  than  a  certain  Ontario  manufacturer  who  ^/bb  well-known  in 
Quebec  as  a  heavy  producer  of  timber,  and  esteemed-  as  a  man  of  sterl 
Ing  integrity.  In  a  certain  year,  however,  he  concluded  to  vary  his 
operations,  while  still  looking  to  Michigan  for  his  supplies,  to  export 
timber  in  a  manufactured  condition;  that  is  in  the  shape  of  deals.  He 
was  in  high  credit  with  his  bankers  and  in  the  trade,  and  had  no  difficulty 
in  making  contracts  for  large  amonnta  with  many  of  the  sawmills  of 
the  State.  In  fact,  the  contracts  were  on  a  scale  far  beyond  anything 
that  had  been  attempted  before;  based  on  the  idea  of  continued  pros- 
perity in  the  business  and  of  large  profits  that  awaited  the  conclusion  of 


tM 


BANKIXO    ANn   COMMF.IlCE. 


Uw  fntrrpriHr.  Biit.  nt  hnt  brrn  obien-pd,  \hc  lumber  ami  timbrr  biui- 
nm  it  tiibjtTt  to  rrcurring  cjtcIm  of  fJtpanilon  and  drprtHion;  the 
drprriilon  nt  tlnwi  bring  to  Kim  •■  not  only  to  rrndrr  It  Impoialble  to 
nwki!  prodt,  but  impoiilble  to  avoid  hravy  lou,  evfn  with  the  rioirat 
numanrmml.  It  wai  while  Iheie  operationa  were  in  an  early  itafc 
that  a  period  of  hearr  deprewlon  let  In.  Prieea  fell  enntinuouily  month 
after  monlli;  indeed,  lo  leTereljr  did  the  renibion  preM  upon  expi'Ptera 
that  enrfpi  after  eargo  wai  at  that  time  lent  abroad  fmnl  Quebec  which 
■rarerly  realiird  more  than  freight  and  chargrl,  leaving  the  whole  eo« 
of  the  article  al  «  loii.  Belter  would  it  have  been  In  lome  eaaea,  ai  a 
merchant  once  told  me,  to  have  iunk  the  whole  cargo  In  the  St.  I,awrenre. 
Thli  hod  come  to  he  the  condition  of  the  trade  at  the  time  now  iprken 
of.  It  wnl,  however,  impoiiiblr  to  atop  oprratloni  when  once  begun. 
Numcroui  gangs  of  min  were  out  In  the  woodi;  the  contract!  revered 
the  operatlona  of  many  milli!  dellveriea  were  conatanlly  going  on  rail- 
way and  ocean  freight!  had  been  engaged  both  from  Canadian  and 
American  jiort!.     Bank  advance!  had  alao  been  arranged  for. 

But  the  full  exirnt  of  the  operation!  had  not  been  di!elo!ed.  TheT 
had  only  been  !pokeu  of  in  general  term!.  But  al  week!  pa!!ed  on  It 
became  evident  that  to  carry  Iheae  operation!  through  a  far  larger  amount 
of  money  would  be  required  than  had  been  apoken  of.  It  !Cerocd  an 
abaolute  neee!ilty  to  make  further  advance!  on  a  very  large  acale,  in 
fact  to  an  amount  altogether  unprecedented.  There  wai  not,  on  the  part 
of  the  bank,  aueh  a  atrict  «tyle  of  dealing  with  the  account  a!  Itl  magni- 
tude called  for.  In  fact,  the  glamour  of  the  cnatomer'i  former  loc 
ce!ae!  lomcwhat  blinded  the  bank*!  judgment  Malten,  therefore,  went 
on.  Till  advance!  nituinl«l  up  to  hundred!  of  llioujomls.  Tiir  eontrmls 
were  finished  and  a  prodisioni*  aceumulalinn  of  exporlaltlc  uHTciiandise 
giithrred  together.  It  was  then  moved  forward  to  tide  water.  Ocean  siiip- 
minli  btgnn.  Sniea  took  place  in  Liverpool  nnd  otlii  r  British  liorts.  But 
the  unwonted  supply  still  further  depressed  the  market;  aud  finally  the 
affair  was  wound  up.  leaving  the  party,  after  all  the  merehaudise  had  been 
realiied,  indebted  to  the  bank  lome  hundred!  of  thomand!  of  dollar!. 

Many  other  portiei  were  involved,  directly  or  indirectly,  in  theie  or 
lub!idiary  operation!,  and  the  downfall  of  the  firm  brought  many  men  to 
ruin  who  hod  hitherto  been  regarded  ai  men  of  !ub!tance.  The  cataatrophe 
wa!  the  heaviest  that  ever  transpired  in  the  trade;  more  than  one  bank 
was  involved  in  heavy  loss;  and  the  leauin!  are  not  likely  to  be  forgotten 
in  thi!  generation  at  least. 

It  may  be  reasonably  asked,  how  it  could  come  about  that  a  trader 
who  had  been  uniformly  ineeesiful  in  limber  operation!  !hould  have  made 
luch  a  prodigious  fiasco  in  a  line  of  business  so  nearly  related,  even  if  a 
lime  of  depression  had  set  in.  To  this  the  answer  muat  primarily  be 
that  the  trader  had  entered  upon  operations  that  were  iraiaeBSely  beyond 
anything  he  had  attempted  before,  and  for  which  his  capital  wa!  ab- 


LOSSES    IX   OTHER    USES   OF    BUSINESS. 


«S7 


wrdlj  InadrqiintF.  But  in  addllian  to  lliii,  tWr  0|K»tloi»  wtn  (uch  H 
he  had  hml  no  riiwrli-nce  In.  He  wal  an  e«|KTt  In  timber.  :  'nnt 
DOlhlnK,  iirarlirally.  of  deali.  For,  althongh  the  buiinew  l  .11.:  n( 
Umber  and  niannfaetnrinR  drill  both  arifinate  in  the  fora.1,  there  b 
an  abaoliitr  dilTerrnre  In  tlie  aia</a<  openadi  even  from  the  very  ootlookl 
■i  hai  been  ihown.  The  riperienre  Kainrd  in  one  will  not  qualify  a  naa 
for  dealing  with  the  other.  And  Canada  furniihei  more  than  one  la- 
•tanec  of  the  follj  of  attempting  an  interchange. 

There  li,  however,  lomethlng  more  to  be  Hid  about  thil  renarkaUe 
rate.  After  llie  great  hrenli-up,  and  when  the  nirthodi  of  the  Arm  were 
brought  fully  to  light,  It  waa  dlacorered  that  the  expenditurei  had  boat 
characterlied  by  eltraardlnary  reckleianeia.  The  cloie  and  cireful 
atyle  of  former  •uceenful  daya  had  been  completely  abandoned,  and  pu»- 
chaiFi,  conlraeti  and  dlibunementa  were  carried  on  from  the  ofier  for 
months  together  apparently  on  the  principle  that  "money  waa  no  object" 
The  partlei  concerned,  in  fact,  had  completely  loot  their  beadi  In  tho 
magnitude  and  multiplicity  of  their  operation!,  the  mult  being,  thai  tha 
•tock  which  had  been  manufactured  had  coat  them  enormoualy  mora 
than  it  should  have  done. 

For  thia  atate  of  things,  no  little  blame  must  be  laid  upon  the  Arm's 
bankers.  They  ought  to  hare  seen  what  was  going  on  at  an  early  stage, 
and  applied  an  eH'cctual  check  to  It.  But  the  large  profits  (apparently) 
being  realised  from  the  account  (and  on  paper  they  were  shnply  Im- 
mense) completely  blinded  the  judgment  of  the  officials  who  had  to  do  with 
It.  They  therefore  went  on  supplying  the  parties  with  money  in  a  moat 
profuse  style,  and  so  continued  until  the  great  catastrophe  supervened. 

Another  instance  of  the  folly  of  a  man  pnnsinfi  from  one  department 
of  the  timber  trade  to  another  of  which  he  knows  notliinji.  will  now  be 
given. 

In  a  certain  timber  district  of  this  continent  a  person  had  grown  up 
amidst  forest  surroundings,  who  by  shrewdness  and  close  attention  to  his 
business  of  manufacturing  timber  had  succeeded  in  acquiring  a  con- 
aiderable  cipital.  The  business  continued  to  be  carried  on  by  his  suc- 
cessors, but  in  time  a  change  began  to  be  perceptible  to  the  bankers  of 
the  firm,  in  the  fact  that  advancea  were  not  periodically  paid  off  as  for- 
merly. Inquiry  elicited  the  fact  that  the  firm,  without  informing  their 
bankers  of  the  change,  had  ceased  to  be  makers  of  heavy  timbei  and 
enlrrrd  upon  the  business  of  sair  milling.  They  had,  in  fact,  eipended 
the  whole  of  their  capital  and  not  a  little  of  the  bank's  advancea  in  the 
erection  and  equipment  of  a  sawmill  In  an  adjoining  district,  and  the 
purchase  of  limits  suitable  for  lumber  operationa.  Thia  was  a  line  of 
business  of  which  they  knew  practically  nothing.  As  was  to  be  ex- 
pected, they  made  mistakes  both  in  the  site,  the  building,  and  the  equip- 
ment of  the  mill.  The  business,  naturally,  did  not  proaper.  The  firm 
stfadily  lost  money.  There  arc  intricate  paints  in  the  manufacture  of 
lumber  of  which  the  firm  only  knew  theoretically.     The  times  also  were 


,gg  BANKING   AND   COMMERCE. 

not  favorablt.  The  fnlcrpriie  wm  commenocd  in  deMpHon,  for  thiy 
had  deceived  the  loeal  manager  of  the  banli  aa  to  the  purpoae  for  whick 
advancea  were  reqnlred,  and,  after  rtmggling  along  for  a  year  or  two, 
they  came  to  a  itop.  The  bnainew  waa  doaed.  The  mill  and  llmita  wer. 
diapoaed  of.  All  the  property  of  the  partnera  waa  realiied,  after  which 
there  remained  a  heavy  debt  to  the  bank  which  had  to  be  written  off 
as  a  loM.  The  mill  baa  long  ago  been  diamantled  and  abandoned,  and 
all  that  remain,  is  the  memory  of  a  once  honorable  and  proiperoa.  «rm, 
who,  in  an  evil  day,  were  tempted  to  abandon  the  pnranit  to  which  they 
had  been  broogbl  np,  and  enter  upon  operation!  of  which  they  knew 
nothing. 


CHAPTER  XXX. 


rSAUDS,  rOBQERIES  AND  DET AL0ATION8. 

P'uuDi    PmriTRArED    fbom    the    Iniioe    o"    the    Bank — Specific 
Insianceb  Narbated — Danger  from  Foroery. 

CONSIDERING  the  enormous  amounts  of  money  and  negotiable  re- 
presentatives of  money  in  the  shape  of  checks,  drafts,  etc..  that 
pass  through  the  hands  of  banli  officers,  it  is  remarkable  how 
linle  irrecularity,  on  an  average,  occurs  in  connection  therewith. 
Through  tiie  hands  of  various  officers  of  a  single  one  of  the  larger  bank* 
in  Canada  there  must  pass,  at  least,  many  thousands  of  millions  of  dol- 
lars evetv  year;  yet,  year  after  year  will  sometimes  pass,  not  only  with- 
out the  s„ghlest  defalcation,  but  without  even  a  serious  mistake,  every 
dollar  being  accurately  entered  and  duly  accounted  for.  Yet,  although 
this  may  be  the  case  ii.  an  average  of  instances,  there  have  arisen  at 
times,  in  the  sphere  of  banking,  very  remarkable  developments  of  fraud, 
not  only  from  without,  but  from  within.  Such  insUnces  are  worthy  of 
a  permanent  chronicle  in  a  work  like  the  present,  for  they  will  warn  bank 
officers  themselves  of  the  devious  ways  in  which  they  may  be  tempted  to 
walkj  it  will  warn,  also,  those  who  have  the  direction  of  them,  in  what 
quarter  dangers  may  be  lurking. 

Frauds  and  forgeries  in  connection  with  banking  obviously  divide 
themselves  into  two  classes:  those  from  without,  and  those  from  within. 
The  last  will  be  taken  first. 

FrAVOS  PlRPETRATEn  FrOX  THE  InsIOI  OF  THE  BaNK. 

Many  years  ago,  in  a  condition  of  things  now  almost  forgotten,  the 
manager  of  a  certain  bank  in  a  large  business  centre  stood  so  high  in  the 
estimation  of  his  superiors  that  he  would  undoubtedly,  had  the  vacancy 
occurred,  have  been  promoted  to  the  highest  office  in  the  bank.  He  had 
risen  rapidly  to  the  position  he  occupied;  and  he  filled  it  with  such  in- 
telligence and  judgment  that  there  was  every  prospect  of  his  becoming 
a  man  of  note  in  the  banking  world  generally.  But  during  the  period 
of  his  management  a  tide  of  heavy  speculation  in  a  certain  article  set  In, 
taking  its  rise  from  the  terribly  disturbed  condition  of  the  neighboring 
States  at  the  time.  The  article  speculated  in  was  subject  to  heavy  fluctua- 
tions, according  to  the  course  of  the  war,  and  many  fortunes  were  won 
and  lost  in  great  centres  of  business  at  the  time.  A  number  of  Sonthem 
refugees  had  taken  up  their  residence  in  the  city  where  this  manager  waa 
located,  and  gradually  became  the  centre  of  constant  speculative  opera- 
tions. Brokers  were  employed  by  this  circle,  who  made  heavy  commis- 
sions on  the  sales  and  purchases  carried  on.  These  brokers  kept  large 
and  active  bank  accounta. 


BAXKIXG    AND    COMMERCE. 


In  an  evil  hour  for  this  manager,  he  made  the  acquaintance  of  Mine 
of  the  members  of  this  circle  of  refugees  and  became  cognizant  of  the 
operations  thejr  were  carrying  on,  said  to  be  largely  based  on  private 
sources  of  information  at  their  command.  Acquaintance  ripened  to 
friendship  and  friendship  speedily  led  to  sympathy  with  the  ideas  that 
were  the  foundation  of  their  speculations.  They  were  all  based  upon  the 
final  success  of  their  cause. 

If  it  was  an  evil  hour  for  the  manager  when  he  first  made  their 
acquaintance,  it  was  a  far  worse  calamity  for  him  when  he  was  induced 
to  take  a  hand  in  their  speculations.  His  operations  increased  little  by 
little.  At  the  outset  it  was  only  his  own  money  that  he  risked.  But  •• 
events  developed,  the  speculative  fever  grew  stronger,  and  larger 
amounts  of  money  continued  to  be  required  to  carry  them  on.  Then  it 
was  that  he  brought  the  funds  of  the  bank  into  play,  concealing  it  from 
the  authorities  by  ingenious  frauds.  It  would  have  been  impossible  to 
pass  these  transactions  through  his  own  account  without  instant  discovery. 
He  therefore  arranged  with  a  firm  of  brokersj  customers  of  the  bank, 
that  the  entries  should  all  pass  through  their  account.  The  advances 
themselves,  however,  could  not  be  reported  at  all ;  they  must  be  concealed. 
The  statements  of  this  broker's  account  that  were  sent  to  Head  Office 
were  systematically  falsified.  Large  advances  were  concealed  by  fraud- 
ulent crediting  of  manufactured  checks.  Thus,  supplies  of  money  were 
kept  up  and  the  authorities  of  the  bank,  for  a  time,  kept  in  ignoranc*^^ 
All  this  time,  hoping  against  hope,  this  speculative  circle  were  looking 
for  some  decisive  change  in  the  course  of  events  that  would  ensure  victory 
to  their  cause.  The  manager  lived  in  the  same  atmosphere  of  hope,  and 
longed  for  a  turn  in  the  tide  which  would  enable  those  illegitimate  ad- 
vances to  be  paid  off.  The  rest  of  the  business  under  his  charge  waa 
being  conducted  with  his  wonted  skill  and  judgment.  But  the  hoped-for 
turn  of  events  never  came;  on  the  contrary,  matters  became  worse  and 
worse.  The  prospects  of  the  great  cause  on  which  so  many  hnd  staked 
their  all  became  darker  and  darker,  until  finally,  a  decisive  event  happen- 
ed, which  ruined  that  cause  forever.  The  game  was  now  up.  All  hope 
of  repaying  advances  was  gone,  detection  was  certain,  and  the  wretched 
manager  sought  an  interview  with  the  directors  of  the  bank,  making  a 
partial  confession.  Tn  consideration  of  his  high  character  and  general 
success  the  board  at  first  were  inclined  to  deal  leniently  with  him,  as 
the  element  of  fraud  was  not  confessed  at  all.  But  as  investigation  re- 
vealed the  machinery  by  which  fraud  had  been  long  carried  on,  there  waa 
no  alternative  but  to  dismiss  him  from  the  service  and  to  call  upon  his 
sureties  to  make  good  the  loss. 

He  remained  in  the  city  for  some  time  after  these  events,  but  never 
again  held  up  his  head.  And  though  comparatively  young  in  years,  he 
died  a  few  months  afterwards,  a  broken-hearted  man. 

Defalcations  amongst  bank  officers,  In  most  cases,  take  the  form  of 
appropriations  by  those  who  have  the  actual  command  of  money,  such 
as  tellers.     At  times,  however,  there  occur  cases  of  defalcation  on  the 


FRAUDS,    FORGERIES   AND    DEFALCATIONS.  841 

p«rt  of  tl.o«  who  do  not  handle  ch,  th«  fraud  hcing  carried  on  by 
mean,  of  one  or  more  conf,J„ate,.  It  „n.ettoe»  happen,  that  the  ide. 
of  .uch  fraud,  originate,  in  the  brain  of  fraudulent  Khemer.  out.ide  the 
oauk.  lhe.e  become  tempter,  to  wrong-doing,  and  if  they  can  find  a 
bank  clerk  willing  to  be  a  party  to  their  .eheme.,  h.  may,  even  if  in  a 
.ubordmate  portion,  enable  them  to  carry  on  fraudulent  operation,  to 
a  rery  large  amount. 

The  mo.t  remarkaUe  of  .uch  ca.e.  in  modern  time.  i.  undoubtedly 
that  which  iranapired  in  the  year  1900,  within  the  office  of  the  Bank  of 
Liverpool,  Lngland.  The  detail,  of  Ihi.  .ingular  affair  became  known 
at  the  trial  of  the  parties  concerned,  and  Kidom  ha.  a  more  extraonU- 
nary  .tory  been  publi.hed.  It  i.  another  ca.e  of  truth  being  "rtranger 
than  fiction;  but  it  illu.tr.te.  what  i.  found  to  be  the  general  feature  in 
all  theae  tranaaction.,  namely,  that  the  bank  clerk  or  officer  concerned 
ha.  made  acquaintance,  or  friend,  amongat  a  cU..  with  whom  he  ha. 
no  right  to  mingle.  The  caie  i.  rare  indeed  that  a  bank  officer  may  be 
drawn  into  connection  (through  frequenting  uloon.  and  kindred  place.) 
mlh  actual  thieve,  and  burglar..  U.nally,  however,  it  1.  with  a  clan 
who  being  at  the  outaet  nothing  wor.e  than  .peculator.,  are  drawn  into 
fraudulent  transaction..  In  the  ca.e  now  to  be  referred  to,  the  auociate. 
who  brought  about  the  Liverpool  bank  clerk',  downfall  were  men  of  the 
tarf. 

It  i.  well  knowr;  and  "pity  'ti.,  "ti.  true"  that  the  habit  of  gambling 
and  betting  on  the  turf  haa  largely  InereaMd  in  England  during  the  laat 
decade  of  year..  Men  of  all  elaaae.  have  been  drawn,  more  or  leu,  into 
the  vortex.  Some  of  them,  after  having  been  "torched,"  have  had  the 
good  .en.e  to  withdraw  with  no  great  lou.  In  other  ca.e.  men  have  gone 
on  plunging  deeper  and  deeper,  until  rain  and  diagrace  cloKd  the  Kene. 
A  career  of  betting  is  dangeroua  for  any  man;  but  of  all  men  it  i.  the 
mo.t  dangerous  for  a  bank  officer.  In  the  Liverpool  caK  the  beginning, 
were  doubtless  .mall,  and  the  gang  of  diarper.,  who  made  thi.  bank  cletk 
their  tool,  probably  hardly  imagined  what  po..ibiliUe.  of  mlKhief  were 
within  their  reach,  when  they  inveigled  him  Into  their  toUa.  And  the  young 
man  himaelt,  at  the  outlet,  never  dreamed  of  the  daring  .cheme.  of  fraud 
that  were  to  be  carried  on  by  hi.  in.trumentality.  He  began  betting 
mth  .uch  .mall  sum.  a.  he  could  riA  of  hi.  own.  But  the  time  came 
when  his  small  rewurces  were  insufficient,  and  the  temptation  was  pre- 
iented  to  him  to  ab.tract  funds  from  the  bank.  From  the  moment  be 
yielded  to  thw  he  was  in  the  power  of  his  confederates.  The  whole  truth 
of  the  relation,  between  them  ha.  never  tranapired,  but  the  probability  I. 
that  the  modxt  operandi  by  which  the  money  wa.  lecnred  was  the  result 
of  cogitation,  between  all  parties  concerned.  The  men  into  whose  power 
the  miserable  youth  fell  were  evidently  familiar  with  banking  operation., 
and  it  i.,not  improbable  that  the  suggestion  of  the  forging  of  customer.' 
check,  came  from  them.  Forgeries  having  begun,  it  wa.  nsentlal  that 
scheme.  .honH  h<-  devised  by  which  it  might  Mem  that  the  proceed,  of 
the  check,  were  drawn  out  legitimately.     Machinerr,  therefore,  wa.  kI 


BANKING    AND    COMMERCE. 


en  foot  of  a  complicated  character,  and  by  means  of  it  abitractiona  went 
on  until  thej  amounted  to  a  lum  which  itartled  the  banking  world.  Dis- 
covery, of  course,  wai  eventually  made.  The  clerk  fled.  So  did  hia  fel- 
low conspirator!.  The  ramifications  of  their  villainies  were  gradually 
brought  to  light.  Most  of  the  parties  were  brought  to  justice,  tried  and 
sentenced.  The  bank  recovered  a  large  part  of  the  money  out  of  which 
it  had  hrfn  di-fraudcd  niid  clmrjp-d  the  bnlnnce  from  its  specinl  rcser\'e 
fund. 

But  the  most  singular  part  of  this  story  is,  that  the  young  man  him- 
self seems  to  have  derived  no  benefit  whatever  from  the  gigantic  frauds. 
He  kept  his  position  in  the  bank,  went  on  quietly  doing  his  work,  ap- 
parently spending  no  more  than  young  n.ta  of  his  class  were  accustomed 
to.  Nor  does  he  seem  to  have  been  allowed  by  the  gang  who  had  the 
mastery  of  him  to  have  fm.Js  placed  to  his  credit  in  a  distant  bank.  The 
men  who  were  his  masters  could  easily  have  made  him  rich,  but  that  wa.: 
far  from  their  thouglits.  To  enrich  themselves  at  his  expense,  and  build 
□p  their  fortunes  on  his  ruin:  was  the  one  object  they  steadily  kept  in 
view.     He  was  their  slave,  and  as  a  slave,  they  treated  him. 

One  of  the  parties  to  the  fraud  was  never  discovered.  Some  evidence 
was  given  at  the  trial,  leading  to  the  supposition  of  his  having  taken  pat- 
sage  in  a  steamer  i'rom  France  to  England,  and  as  he  never  landed  it  wai 
surmised  that  he  ended  his  career  by  suicide.  If  so,  Justice  was  balked 
of  her  piey,  for  crimes  such  as  these  men  committed  could  hardly  be 
deemed  sufficiently  punished  even  by  penal  servitude  foi>  life. 

In  neither  of  the  foregoing  cases  did  the  frauds  result  in  any  benefit 
to  the  bank  officer  who  commit. ed  them.  A  case  is  now  to  be  related  in 
which  gam  was  the  object  and  in  which  measures  were  so  cunningly  con* 
trived  that  success  for  a  short  time  was  attained. 

Iti  a  certain  bank  ofRce,  in  one  of  the  smaller  towns  of  Canada,  ■ 
manager  many  years  ago  was  performing  his  duties,  on  the  whole,  in  sncb 
a  manner  as  to  give  satisfaction.  He  made  mistakes,  at  times,  ai  other 
men  do,  in  like  positions  and  was  sometimes  reprimanded  by  his  superior 
officers  on  account  thereof.  But  he  stood  well  on  the  whole,  and  would 
doubtless,  in  time,  have  been  promoted  to  a  higher  position. 

The  ordinary  course  of  the  business  of  his  office  was  quiet  and  un- 
eventful; hut  on  a  certain  day,  in  the  midst  of  a  winter  season,  a  rather 
singular  event  occured.  As  is  the  case  in  oil  bank  offices,  the  keys  of  the 
se.fe  and  its  inner  compartments  are  divided  between  the  manager  and 
one  or  two  other  officers,  the  presence  of  all  being  necessary  before  the 
safe  and  its  compartments  can  be  opened.  On  the  day  referred  to,  the 
uianager  told  the  accountant  that  it  would  be  needful  for  him  and  the 
"teller"  to  come  to  the  bank  rather  late  in  the  evening,  as  a  person  with 
whom  he  had  had  some  correspondence  had  business  to  transact  and  would 
arrive  by  a  late  train  and  muf  t  leave  by  an  early  train  in  the  morning. 
This  man,  m  the  event  proved,  was  o  confederate  in  a  contemplated 
scheme  to  defraud  the  bank.     Yet  he  was  a  well-known  merchant  in  a 


FRAUDS,    FORGERIES    AND    DEFALCATIONS.  US 

~rt.in  lino  of  bu.i„c..  of  which  there  «,.,  a  good  deal  in  the  neighbor- 

nmr^''^"-f''J"'^'"'^  "'  '  '"''"  "■"»"<•«»"  «'"•  thi.  man,  in  which  the 
^nge,  the  manager  had  the  ..fe  opened,  and  a  c„n.iderable  .um  of 
money  p.,d  over  to  him.  The  eonfederale  left  the  town  the  next  nTorn 
IbfrJof'tr".'*"'-,  *■"'"*  ""  .oeuuntant,  a.  eu-tomary,  in  tempor.rr 
eharge  of  the  br.neh   went  to  Toronto  the  next  evening,  .lating  that  he 

™.L  Itth  *'"^"/,"''^«''"P"-  n,...age  from  a  di.tant  ei  ,  r^I 
Z,^  .f  «"  P'<;"-"'l'd  business  transaction  was  a  fr.nd.  On  reeeint 
of  th,.,  the  hrst  thought  of  the  aeeountant  w„,  that  the  manager  hid 
been  v,et,m.zedi  for  that  he,  the  manage,  him.elf,  eould  be  a  partf  o  l^ 
fraud  wa.  almost  unthinkable.  However,  the  authorities  of  the  bank   who 

fraud  hrdT""""'"";^  'f''  """  '^"°"'  ^°""""^  "«"  «  «>"»•'" 
fraud  had  been  perpetrated,  and  that  the  whole  proceeding,  had  bee^ 

part  of  a  prearranged  plot  to  deceive  the  bank.     The  appeafanc  of  t^ 

•tranger  at  the  tm,e,  the  haggling  about  eoramissions,  the  journey  of  th. 

D.'X  MUh"  .^"IV"""^"' ''''""f.  ■"■•  "■"  —"ling  the  amount  of  th. 
p..l-d„e  b.H  the  following  day,  all  were  seen  to  be  cunning  contrivance, 
by  wh.eh  ,u>p,eio„  was  lulled  .uffieiently  long  to  enable  the  manager  atd 
h-  eonfederate  to  place  themselve.  a.  far  beyond  discovery  as  ^„ibt 
The  most  energetic  measure,  were  taken  immediately.  The  most  skillful 
of  the  m«iy  law  officer,  connected  with  the  bank  were  set  to  work, 
rinkerton  .  Detective  Agency  wa,  employed,  and  hundred,  of  telegraphic 
message,  were  sent  to  all  part,  of  the  United  Slates;  for  thither" of 
«.ur.e,  the  fugitive,  would  be  .ore  to  proceed.  The  fir.1  trace  of  th. 
delinquent,  appeared  in  the  .hape  of  a  parcel  of  the  notes  of  the  bank 

branch  of  the  bank.  These,  on  examination,  were  found  to  be  a  ..ortion 
of  the  stolen  money.  Thi.  wa.  the  first  clue,  and  with  the  assistance  of 
the  detec  ,«  lawyer.,  and  officer,  of  the  bank,  it  wa.  ,o  well  foUowed 
up  that  the  fugitive,  were  both  di»»vered  in  their  remote  hiding-place, 
and  the  larger  part  of  the  spoil  recovered. 

The  story  of  their  pursuit  i.  a  .ingnlar  one.  The  fir.t  person  to  be 
communicated  with  wa.  the  private  banker  in  New  York  Sl^e  who  had 
forwarded  the  note..  In  an.wer  to  enquirie,,  he  Mid  that  two  men  had 
come  into  hi.  office  .onie  day.  before,  and  deposited  a  large  amount  ..f 
money  in  Canadian  bank  bills,  staling  that  they  were  in  the  eaWe  trade 
and  had  come  over  to  buy  cattle  in  the  slate  of  New  York;  a  likely 
enough  ,tory  Then,  that  they  had  drawn  out  the  money  the  day  after  in 
American  bills,  to  make  payments,  as  they  said,  for  the  cattle  they  had 
bcnght  The  two  men  were  evidently  the  bank  manager  and  hii  con- 
tederate  D-leetive.  followed  „p  the  elue  and  aKcrtaincd  that  the  two 
men  had  proeetded  to  the  station  of  the  New  York  Central  Railroad 
where  one  had  bought  a  ticket  for  New  York  and  the  other  for  Chicago 


:'H 


^  ■  i 


BANKING   AND   COMMERCE. 


844 

Th.  man.ger  h.d  gone  to  New  York,  .•  w«  .appoied  he  ^^^'  'J^ 
.tr.nge  «  it  m.y  .ppe.r,  he  .pent  .  d.y  or  two  qo.etly  "•* "8  W*  •««' 
.t  the  very  lime  deleetivc.  were  Kouring  the  e.ly  in  .careh  of  him.     But 
the  .e.rch  being  eonlinued.  the  drtectlve.  found  tr.ee.  of  a  ^^'«^ 
bling  the  manoger  a.  having  left  New  York  en  route  fo"•-^S°»?■•   «« 
of  the  highe-  offieer.  of  the  bank,  who  wa.  well  acquainted  with  the  man- 
ager and  Iii.  ha.-,dwtiling.  wa.  in.tantly  deapotched  to  aeeompany  a  de- 
irelive  i',  purauit.     The  «r.t  certain  trace  wa.  found  in  a  .oulhern  hotel, 
on  e:>a..iii.ing  the  r.gi.ter  of  which  a  name  wa.  found  to  1-ve  been  en- 
lered  two  d.v.  before  in  the  manager',  handwriting!  under  another  name 
of  cour.0.     They  were  now  on  the  track  of  the  fugitive.     TmeUing 
miftlv  thev  followed  op  trace,  from  city  to  city,  by  mean,  of  hi.  hand- 
"i  ng.     Pa..ing  on  fiom  South  Carolina,  they  tr.ver.ed  the  .tate.  of 
Georgfa.  Florida!  Alabama,  Loui.iana.  Mi..i..ippi,  Texa.  -i  Arkan.... 
All  the  trace,  were  followed  up  with  the  keenne..  of  a  jl™**"""^' ^«' 
the  fugitive  wa.  alway.  a  day  ahead  of  hi.  pur.uer..     He  did  not  know 
exacUy  what  wa.  being  done,  but  he  wa.  v.^  ■"«  that  he  «.  teing 
do^v  puraued.     Thi.  conviction  led  him  to  betake  himaelf.  -.t  iMt,  to 
the  m-o.t  remote  and  leart  frequented  part,  of  the  immen^  region,  he  w« 
traveraing.     The  .ame  cunning  he  had  manifeated  in  ^-iing  the  plot 
enabled  him,  after  a  day  or  two  of  flight,  to  dev,«  ■""'"'"J-^  r*''^  ™ 
p„r.uer,  would  be  completely  baffled.    And  baffled,  at  len^h,  they  wer^ 
men  thev  reached  the  fartheat  ,H.rtion.  of  Arkan...  »"f  -«  ""  *' 
border  ofthe  Indian  Territory,  they  l„.t  theclue  comp  etelv    to  their 
peat    vexation.     The  fugitive  had  evidently  e«.ped  for  the  time.     The 
^uiiuer.  returned  and  the  bank  re.igned  ilaelf  to  the  po..ibility  of  a  con- 

•""  ™!:  Ii^^ever,  wa.  not  to  be.  A  few  month.  t™.Pired  and  nojhing 
wa.  hea  d  of  the  mi«ing  man,  until  one  day  the  «.bc,tor  of  *e  bariUn 
New  York  received  a  letter  from  him  dated  from  an  otacore  •«<=  t?""' 
taTne  of  the  far  Weatem  .tate.,  .tating  that  he  .UU  had  nearly  half  he 
lun  money  in  hi.  po..e..ion,  that  he  felt  >■>">->' '°  'j'.^^J  '^^. 
hare  that  would  certainly  be  run  down  .ome  day,  "-at  hfe  had  be«.m. 
nerfectly  intolerable  to  him;  that  he  could  neither  reat  by  day,  nor  .leep 
Ty  ^sM;  and  Anally,  olTering  to  make  all  the  '"^-}^\"' ^''^^'^ 
The  bani  left  the  matter  in  the  hand,  of  their  «,icitor  ■■■  Ne^J"*: 
and  the  greater  part  of  the  money  in  the  fugitive'.  po..e..lon  wa.  re 
"vered.  Twa.  evident,  at  the  time  the  re.lor.tion  of  the  money  wa. 
WgW  about,  that  the  man  wa.  utterly  broken  both  in  body  and  mind, 
and  he  died  a. hort  time  afterward..  „l.„  .flwded 

Meanwhile,  energetic  .tep.  had  been  taken  to  follow  the  due  a^orded 
W  the  ticket  to  Chicago  to  track  the  confederate.  He  iiad  come  ro 
Xioal  thI  wa,  pro,cd.  But  whither  he  had  gone  wa.  the  difficult 
S  ;i:'t  ae  .  a.  ae're  were  d„.en.  of  direction.   "'••  >f  tlTfl  o'ft 

./place.,  in  ^^\^^^^::^irT.i:^:::;,j:  ^^^.^ix 


FRAUDS,    FORGERIES    AND    DEFALCATIONS,  ai3 

iBg  on  L«ke  Superior,  where  lumbering  operationa  were  then  being  c»r- 
ried  on.  It  wu  wirier  and  there  would  be  nnmben  of  lumbering  campi 
in  the  wooda.  In  aonie  of  theie  campi  tidings  might  poMibly  be  heard  of 
him.  Purauing  thi«  idea,  detective!  were  lent  in  aearch.  The  localities 
were  very  remote,  the  area  covered  by  the  camps  vai  hundred!  of  square 
mile!  in  extent,  and  covered  by  den!e  fore!t.  The  chance  seemed  very 
remote  i  but  detective!  !eem  almo!t  able  to  work  miracles  in  the  way  of 
investigation,  and  at  length,  in  one  of  these  camps,  in  a  very  remote  re- 
gion, they  heard  that  a  stranger  had  laUly  made  hi!  appearance,  appar- 
ently a  Canadian  and  a  lumberer,  who  had  come  professedly  to  look  after 
timber  lands.  The  detectives  were  now  convinced  that  their  man  was  in 
sight.  Soon  afterwords  they  found  him  and  telegraphed  to  the  kwyer 
of  the  bank  who  hod  the  matter  in  charge.  He  came  up  and  found  that 
the  confederate  had  the  larger  part  of  the  stolen  money  upon  him,  and 
so  managed  matters  that  most  of  it  was  given  up. 

I''L'nTllBR   iNfaTANCKS  OP   FrAUD  ANO  FoROBRY. 

Although  the  instance!  of  defalcations  and  forgery  are  repeated 
one  after  another  in  these  chapter!,  it  ii  not  intended  to  convey  the  ini- 
prei!ion  that  soeli  crime!  against  commercial  honor  are  common  events. 
This  is  so  far  from  being  the  eaie  that  of  the  millions  of  money  that 
pass  through  the  hands  ot  bank  officers  in  the  course  of  their  bu!ine.!, 
not  one  in  a  million  probably  i!  abstracted  or  improperly  dealt  with.  Of 
the  millions  of  dollars  of  commercial  bills  drawn  during  any  given  year, 
it  is  safe  to  say  that  not  one  in  a  million  is  forged.  A  striking  instance  of 
the  absence  of  defalcation  and  the  prevalance  of  commercial  honor  dur- 
ing a  long  course  of  years  is  fumUhed  in  the  history  of  the  Bank  of 
New  York.  This  bank  has  put  on  record  that  dnring  the  first  forty 
years  of  its  eiistence  no  bonds  of  suretyship  were  taken  from  its  officers, 
and  that  during  the  whole  of  that  period  not  a  ri»gU  defalcation  occnrrtd. 
Times  and  circumitances  have  changed  materially  since  the  period  re- 
ferred to,  and  all  banks  and  corporations  now  find  it  pmdent  to  take 
such  bonds.  Yet,  even  now,  frauds  and  forgeries  are  rare  evenU.  But 
when  they  do  occur  they  are  not  seldom  of  so  striking  a  character  as  to 
furnish  object  lessons  to  banks  and  every  description  of  corporations. 

At  a  certain  period  in  the  history  of  the  New  England  States,  few 
bank  officers  were  more  prominent  and  respected  than  the  cashier  of  a 
certain  bank  in  one  of  their  principal  cities.  He  was  known  all  over  his 
own  state  and  highly  esteemed  as  a  man  of  honor  and  ability.  He  took 
a  prominent  part  in  the  afi'airs  of  the  city  in  which  the  bank  was  situ- 
ated. And  if,  at  any  time,  a  di!cu!!ion  had  ariaen  al  to  the  poasibilitka 
of  fraud  in  the  banks  of  New  England,  his  would  have  been  the  last 
name  thought  of.  But  one  day  there  began  to  be  rumored  about  the 
city,  to  the  astonishmer  of  the  community,  that  there  wai  something 
wrong  Tvith  the  .ipcount  of  the  Cashier  of  the  bank. 

At  first  nobody  credited  Hie  rnmor,  unless  it  might  be  a  few  cynics 
of  the  class  that  have  a  "bad  opinion  of  everybody  in  general."    But  ai 


246 


BANKING    AND    COMMERCE. 


the  dayi  went  on  the  rtimor  gathered  itrength  and  took  a  more  definite 
•hape.  A  defalcation  had  certainly  been  diicoverrd.  The  amount,  aa  la 
invariably  the  caie,  was  exaggerated  by  rumor;  but  at  length  the  arreat 
and  prosrcution  of  the  caihier  placed  the  matter  beyond  doubt.  The 
event  gave  a  shock  to  the  banking  and  commercial  community  of  the 
whole  state,  and  even  beyond  its  borders.  Numbers  of  people  felt  of 
if  the  vi'ry  foundations  were  giving  away,  when  such  a  man  as  he  wan 
supposed  to  be  could  be  guilty  of  crime.  If  such  men  as  he  could  not 
be  trusted,  who  was  worthy  of  confidence?  Many  hoped  that  after  all 
he  might  bo  able  to  clear  himself.  The  hope,  however,  proved  fallacious. 
The  arrest  was  followed  by  trial;  the  evidence  could  not  be  controverted, 
and  he  was  found  guilty  by  the  jury,  regretfully  enough.  A  long  course 
of  honorable  dealing  could  only  be  pleaded  in  mitigation  of  sentenct. 
This  was  doubtless  taken  into  consideration  by  the  judge,  but  the 
sentence  imposed  was  severe,  namely,  imprisonment  for  ten  years  in  the 
.St;ite  p'.^nitentiary. 

When  the  cause  of  this  sad  downfall  was  inquired  into,  it  was  found 
that  stock  speculating  lind  been  carried  on  by  the  cashier  for  some  time 
back,  and  that  the  funds  of  the  bank  had  been  used  for  the  purpose. 
These  speculations  were  sometimes  very  profitable;  at  other  times  not 
But  at  length  a  period  of  steady  losses  set  in;  calls  for  margins  could 
not  be  responded  to,  and  the  defalcations  could  no  longer  be  covered  up. 
Then  came  the  inevitable  discovery. 

But  there  \/aa  something  behind  the  stock  speculation.  The  promi- 
nence of  this  cashier,  in  the  community  and  the  state,  had  gradually  led 
him  into  a  style  of  living  that  was  far  beyond  his  Income.  It  was 
doubtless  for  the  purpose  of  adding  to  his  income,  so  as  to  enable  him 
to  keep  up  this  style,  that  stock  speculation  was  first  resorted  to.  That 
step  onee  taken,  the  path  diverged  further  and  further  from  safety  and 
honor,  and  ended  in  the  catastrophe  that  has  been  narrated.  In  this  case 
the  directors  of  the  bank  can  hardly  be  absolved  from  blame.  The  style 
in  which  the  cashier  lived  was  perfectly  ap-,  «:  t'nt.  The  very  house  he 
lived  in  gave  evidence  of  it,  and  they  could  not  fail  to  know  that  such  a 
style  could  not  be  supported  by  the  salary  he  was  receiving.  It  was, 
doubtless,  their  duty  to  interfere,  before  wrong-doing  had  been  develop- 
ed. Had  tliey  done  so,  they  would  have  saved  the  bank  from  loss  and 
their  cashier  from  niin  and  disgrace. 

The  Danobk  From  Foroert. 

Of  all  the  dangers  that  arise  in  the  conduct  of  bank  business,  forgery 
ii  perhaps-  ihe  most  difficult  to  guard  against.  The  danger  especially 
arises  from  the  fact  that  it  is  often  committed  by  persons  of  good  stand- 
ing, who  by  a  course  of  honorable  dealing  have  established  themselves 
in  the  confidence  of  the  community.  There  are,  in  every  large  commer 
cial  centre  men  in  business  whose  reputation  is  so  bad  that  they  could 
not  pass  a  forged  bill  if  they  tried.  It  is  the  men  of  good  reputation 
and  antecedento  who  astonish  the  world  at  times  by  falling  into  the  pit 


FRAUDS,    FORGERIES    AND    DEFALCATIONS.         s»7 

of  dlihonor,  nnd  offering  forp-d  billi  and  documrnU  to  .  bank  Of  thii 
•  few  inrtanen  will  he  givni.  '"" 

«f  .f  ^  ".','■'". '■"'':?■  '"  ""•  ''"'"'■  °f  ""=  °f  "«=  K"»>  "«Pl«  trade. 

of  tlie  Continent,  no  firm  stood  higher  than  that  of *  Co  The 

head  of  the  home  belonged  to  one  of  the  be.t  fao,ilie.  in  the  eountry, 
•nd  the  name  «.elf  ,„.  „  ,v„„„ym  for  all  that  wa.  honorable  and 
respectable.  They  earried  on  bu.ine«i  in  more  than  one  eentre  of  trade 
and  were  known  a.  ,„,„„g,l  ,hc  largeat  exporter,  of  the  eommodily  Ihejr 
d«lt  .n  Ihey  wm  bona-fide  merehant.,  who  aetmUly  handlrf  Ih. 
good,  they  exponed;  not  mere  «hemer.,  who  lived  by  .peeulation  and 
engineered  eorner.  in  the  trade.  Thi.  «rm,  like  other  firm.,  had  it. 
good  and  bad  year..  Bnl  If  any  one  had  made  a  gue..  a.  to  the  p„..l. 
blhty  of  any  hou.e  on  Change  doing  anything  di.honor.ble,  thi.  firm 
would  have  been  ruled  out  of  the  .uppa.ition  at  once 

One  day  in  the  mid.t  of  a  bu.y  .e..on,  the  head  of  thi.  hou.e  pre- 
Kned. hipping  document,  to  a  bank  with  whom  they  dealt;  that  I.,  biU. 
of  lading  and  policie.  of  in.arance,  for  a  large  amount  of  merchandiw 
to  be  .hipped.  An  advance  wa.  made  upon  them  with  the  u.ual  margin 
A  day  or  two  afterward,  the  city  wa.  .tartled  by  the  new.  that  thi.  firm 
had  .topped  paj-menl.  The  new.  did  not  particularly  disturb  th=  bank 
for  their  advance  w»i  apparently  well  covered  by  .ecuritie..  The  only 
irregular  feature  wa.  that  the  bill,  of  exchange,  which  should  naturaUy 
have  been  drawn  against  the  merehandiK  .hipped,  had  not  been  brought 
in  a.  customary.  The  bank  had  bill,  of  lading  however.  Thi.  would 
keep  them  ,afe.  The  idea  of  the  bill,  of  lading  brought  in  by  such  a 
firm  being  forged  wa.  inconceivable.  But  thi.  proved  to  be  the  can 
The  whole  of  the  document,  were  forgerie.,  bill,  of  lading  and  policie^ 
of  in.urance  together,  skillfully  contrived  by  the  head  of  the  firm,  In 
order  to  prcKnt  a  perfectly  genuine  appearance.  He  was  the  guiltr 
party,  and  was  arrested  at  once.  Trial,  of  course,  followed.  The  faci 
were  indi.put.ble,  and  the  only  plea  put  in  was  iuMnity— a  plea  that 
might  well  carry  .ome  weight  in  such  extraordinary  circumatances.  For 
thongh  such  a  firm  might  possibly  faU.  the  failure  would  not  have  been 
an  extraordinary  matter  in  that  trade,  in  „  time  of  falling  marketa.  And 
T.  •  f'"""  ''™M  ""T  no  "tain  ,n  „nal  dishonor  compared  with 
that  wbieh  would  ariK  from  the  commiasion  of  a  crime.  It  might  well 
be  called  an  act  of  moral  insanity  for  a  man  to  perpetrate  such  a  deed 
on  the  eve  of  insolvency;  for  it.  effect  was  merely  that  Kime  one  or  more 
of  his  creditors  would  be  paid  in  full,  while  another  creditor  would  be 
created  to  an  equal  amount.  It  wa.  not  moral  Insanity,  however,  that 
was  pleaded;  but  actual  insanity:  such  insanity  a.  would  make  the  party 
Irresponsible  for  his  actions,  and  jurtify  hi.  Incarceration  in  a  lunaUc 
asylum.  The  plea  carried  weight  to  thi.  extent,  that  the  jndf^  who 
tried  the  caM  ordered  that  the  prisoner  be  committed  to  the  rtate  Innatie 
asylum,  for  the  purpo«  of  testing  whether  he  were  inune  or  not. 

Meanwhile  the  affair,  of  the  firm  were  placed  in   the  hand,   of  an 
auignee,  and  the  naual  course  in  such   can.   wa.    followed.     Scared/ 


:'  vHl 


(41  BANKING    AND    COMMERCK. 

enough,  howrver.  w..  rralUrd  lo  p.y  the  »•!•  of  lll)uid.Uon,  ...J  Ih. 
bonk  conciTl..  J  loit  Ih.  wholr  mmoml  of  lU  .dvM.cc.  The  head  of  th* 
Cm  remained  in  the  Mjlnm  for  *  time,  >nd  wu  then  relegated  to  th. 
cnrtodT  of  the  oSccM  of  the  Uw,  no  dcSnite  dedilon  having  been 
reached.  Strong  Inflocncrt  were  brought  to  bear,  and  the  court  faaUy 
aUowcd  the  priwnrr  hli  liberty,  under  an  engagement  of  reappeaianet 
A«  time  -cut  on,  the  caK  and  iU  clrcumaUncci  and  all  concerned  ta  11 
were  forgotten,  in  the  ruih  of  new  event..  The  alTair  Mnk  into  oMWm. 
.ml  ha.  .o  remained  to  thi.  day  w  far  a.  the  public  are  ™"«n>«d  Th. 
director,  and  officer,  of  the  bank,  however,  are  not  very  likely  to  forget 
11.  The  ca.c  ii  one  of  the  moit  .Ingular  development,  of  human  nature, 
and  human  folly,  that  ever  aroae  in  banking  annal..  ,....,. 

The  oniT  comment  that  can  be  made  upon  the  action  of  the  bank  In 
the  c..e  i.  "that  they  .hould  have  noticed  that  the  .pplic»tlon  wa.  for  a 
loan  on  bill,  of  lading,  in.te.d  of  for  the  negotiation  of  a  bill  or  bill, 
of  eiehange,  with  the  bill,  of    lading  attached.     Enquiry    might    have 
been  made  why  the  u.ual  cour«>  wa.  not  followed.     Any  departure  from 
the  ordinary  coor.e  of  thing,  may  naturally,  at  any  ttoe,  «!«''•««' 
enoulrv.    In  fact,  it  .hould  alway.  do  .o,  a.  .uch  a  departure  I.,  at  time., 
an  indication  of  a  more  grave  Irregularity  than  a  ■«''■"•""  "'  ['T: 
In  thI.  C.K  It  I.,  at  lea.t,  p««lble   that  enquiry   might    have    r«ealrf 
«m.ethlng  that  wonld  have  put  the  b«4er  on  hi.  guard.     Some  he.lt.- 
tlon  to  manner  might  have  been    apparent,  «».    '"'''wardn«.    te    er 
platolng  the  re.«.n  why  bill,  were  not  offered,    .ome   contr.dirtion   to 
Lement,  that  might  have  led  to  a  requcat   for   tta.  to   "n-ider   the 
mltter,  4lch  con.ideratlon  might  have  led  to  farther  enquiry,  wh,ch 
would  have  expo«d  the  contemplated  fraud.    And  though  .t  1.  e«y^ 
b.  "wlK  after  the  event,"  there  can  be  no  doubt  that  a  con.lder.ble  part 
of  the  mo.t  valuable  experience  that  a  l"*"  P^"*""  '"  *  We«  " 
recollection  of  ju.t  .uch  ««urrene«  »  are  noticed  in  ^''f/^'P^-^ 
Of  a  very  different  de«riptlon  1.  the  c.«  now  .bout  to  be  PJ^*^ 
In  a  certato  dirtrlct  of  the  northern  p.rt  of  IhU  conHnent,  fewmen 
had  a  higher  repuUtion  «>mc  year,  ago  than  the  »«'"";'',  °^7*t'" 
„ttry  m*unlc.p.Htle..  who  united  to  put  ^^^^^f^^^ ^'^^  '^  J^ 
keeptag.    HI.  account  w..  with  on.  of  th.  bank,  of  the  d*"^  'nd  for 
iTe  tfme  had  been  carried  on  «tl.faetorlly     The«  "■""'^'P'""^^,^ 
to  the  habit  of  borrowing  «.m.  in  .ntidpaUon  of  ta«.  to  1»  ~'1«^> 
which  loan,  were  upon  ceHiHed  reflation,  of  the  "»"",'?!«",„'? 
onTday  a  rumor  .pread  abroad  that  thl.  gentlem«.  hi|d  dlMPP"/^' 
h»,  following  upon' thl.  that  he  had  large  amount.  »'  *'J™^ '/ ^ 
munlcipalitle.  in  hi.  poMcwlon.     Enquiry   of  "'■"'- ^"""'f,.!    ™ 
then  dUcovered  that  «)me  of  the  document,  on  which  "•«""•"«'  ™ 
obtained  money  were  fbrgeri..,  the  re.ult    of    cour«,   being    that   *. 
mmUcipalitie.  were  not  r..pon.ible.     Detective.  w«.  .et  «°  "A-^ 
the  manager  of  th.  bank  wa.  anthori.ed  to  foUow  the  f-IP*-".    «^ 
p«icd  by  a  local  conrtable  who  knew  him.  Trace,  were  found  her.  and 
Lre,  at  poinU  further  and   further  «nth,  and  It   b«ame   evident   at 


FRAUDS,   FORGERIES   AND   DEFALCATIONS. 


24p 


length  that  he  was  on  bii  wny  to  Mexico.  He  eroned  the  Rio  Orande 
and  then  luppoied  he  wai  perfectly  lafe,  there  being  no  extradition 
treat/  between  Mexico  and  Great  Britain,  However,  the  manager  who 
waa  a  wan  of  energy  and  dr termination,  decided  to  continue  the  punutt, 
and  confront  the  forger,  if  he  could  find  him.  He  followed  him  to  the 
City  of  Mexico,  obtained  the  aid  of  the  British  Ambaaiador,  found  the 
man,  and  at  length  luccredcd  in  having  him  taken  to  Vera  Crua  and  pat 
on  board  a  British  iteamer  bound  for  the  Weat  Indies.  He  was  now  in 
safe  custody.  The  manager  and  the  constable  kept  their  prisoner  in 
charge  and  had  htm  transferred  to  a  West  Indian  steamer  sailing  to 
Liverpool.  From  thence  the  parties  proceeded  back  again  across  the 
Atlantic,  landed  v-.  British  ground,  thence  proceeding  half  way  acroia 
the  continent  until  they  arrived  at  the  city  where  the  fraud  had  been 
committed.  Thus,  after  a  journey  of  nearly  twenty-thousand  miles,  the 
criminal  was  brought  baek,  much  to  the  astonishment  of  the  community 
where  he  had  lived,  and  especially  of  the  people  of  the  country  munici- 
palities, whose  names  he  had  fraudulently  used.  He  was  tried,  .  ^n- 
▼Icted  and  sentenced  to  a  long  term  of  imprisonment  In  the  penitentiary. 
The  energetic  action  of  the  bank  in  following  this  man  over  such  eno^ 
moos  distances  produced  such  an  impression  upon  that  communis  that 
though  some  fifteen  years  have  elapsed  since  those  occurrences,  no  serloua 
case  of  forgery  has  since  transpired  in  the  city. 

In  this  case,  It  does  not  seem  that  any  want  of  care  could  be  imputed 
to  the  bank,  in  their  dealings  with  this  man.  But  as  it  Is  not  the  only 
instance,  either  in  Canada  or  the  United  States,  where  treasurers  of 
municipalities,  and  even  of  churches  and  missionary  societies,  have  com- 
mitted fraud  in  their  dealings  with  ^anks,  it  does  seem  desirable,  and 
necessary,  for  bankers  to  take  special  care  in  regard  to  such  acrounta, 
and  to  insist  upon  snch  cheeks,  by  continuous  audit,  or  otherwise,  as 
would  put  efficient  obstacles  in  the  way  of  wrong-doing,  on  the  part  of 
treasurers. 

The  next  rnse  cited  ts  of  a  totally  different  character  from  any  of 
the  preceding. 

One  of  the  most  remarkable  cases  of  forgery  that  have  transpired 
within  the  last  quarter  of  a  century  was  that  of  a  prominent  merchant  In 
a  large  seaport  of  Great  Britain,  where  an  extensive  trade  wa.«  f>arried 
on  in  the  raw  material  of  the  manufactures  of  the  district.  T  .'  was  a 
man  of  great  energy  and  ability,  not  a  native  of  the  place,  but  one  of 
that  large  class  of  foreigners  who  have  established  tiiemselves  in  the 
centres  of  trade  of  these  times.  His  business  was  that  of  an  importer, 
and  that  on  a  large  scale.  His  customers  were  the  manufacturers  of  the 
district.  They  settled  their  accounts  by  acceptances  or  promissory 
notes.  The  "paper"  was  of  that  class  which  bankers  always  consider 
with  high  favor;  and  very  naturally,  being  founded,  when  genuine,  upon 
bona-fide  transactions,  and  both  names  to  every  bill  being  generally  of 
a  high  class.  Suddenly,  however,  an  event  happened — for  such  events 
always  happen  suddenly—which  was  the  beginning  of  a  revelation  that 


!:         -11 


fM  BANKING   ANI>   COMMERCE. 

utoniihcd  the  bank  and  At  whole  dltlrkl.  Om  of  the  biU«  win  re- 
tnmnl  protntcd  for  non-p«)-mrn« ;  Iht:  bank  at  whteh  It  wai  payable 
having  no  advlci,  and  no  funda.  The  dliconnting  bank  natnially  thought 
that  tome  clerical  irregularity  had  tranipired,  wme  letter  had  been  mia- 
poated,  iome  remittance  gone  aitrav,  and  notified  the  aceepton  at  once, 
expecting  a  check  In  pnyment  bjr  return  mall.  Initead  of  thU  cawc  the 
alarming  announcement  that  the  drawee!  had  never  accepted  iuch  a  bill 
at  all.  Recoune  waa  inaUntlj  made  to  the  merchant,  who  had,  in  the 
ordinary  way,  been  notited  of  the  diahonor  of  the  bill.  But  hia  place 
of  bualneu  waa  cloaed  that  morning,  and  he  himaelf,  had  left  the  eilj. 
Then  gradually  came  a  full  revelation  of  the  whole  extent  of  the  T-rong- 
dolng.  Bill  after  bill  came  back  under  proteit,  one  houae  after  another 
wrote  in  the  laue  term!  ai  the  flrat,  namely,  that  they  had  never  aigned 
auch  billi.  U  waa  like  a  lucceiaion  of  thondcr-clapa  to,  the  bank,  for 
nearly  all  the  biUa  were  of  large  amount,  running  Into  thouaanda  of 
pounda.  Finally,  the  whole  extent  of  the  fraud  waa  reallied,  the  loM 
being  aerioui  enough  to  require  to  be  charged  to  the  aurplua  fund  of  the 
bank.  The  fund,  however,  wai  well  able  to  auatain  it,  and  the  bank 
went  on  with  tta  boaineaa  aa  uiual. 

In  thii  eaae,  the  general  impreaalon  among  bankera  and  merchanta  in 
the  diitrict  waa,  that  no  blajie  could  be  attached  to  the  bank;  or  that 
any  imputation  of  Ucht;  or  negligence,  could  lie  agalnat  the  managers. 
The  fraud!  had  been  carried  on  with  extraordinary  ingenuity;  the  forger 
even  had  printed  or  engraved  eopiea  made  of  the  forma  nted  by  the 
drawees  of  billi,  for  coneipondence,  promlMory  notea,  and  acceptance 
of  billa,  when  acceptance  waa  made  by  a  aUmp.  And  the  forger  having 
a  good  repuUtion,  eiUblUhed  trade,  and  good  connections  both  at  home 
and  abroad,  there  was  everything  in  the  circumsUnces  to  inspire  cond- 
dence.  But,  as  haa  been  observed.  It  Is  generally  only  in  circumsUnces 
like  thii  that  forgeries  of  any  extent  can  be  carried  out  at  all. 

There  is  this,  however,  finally,  to  be  said,  that  in  most  cases  of  fraud 
and  forgery,  there  arlae  little  drcumstancci,  which  if  noticed  at  the 
time,  might  be  foUowed  up,  and  lead  to  increaaed  watchfulness  as  to 
other  circumstances,  which  course  In  some  caaea  would  lead  to  a  dis- 
covery In  the  early  stages  of  wrong-doing,  and  prevent  loss  later  on. 
For  in  all  cases  of  fraud  the  tendency  la  to  grow  worse  and  worae,  the 
amount  becoming  larger  and  larger  unUl  discovery  puU  a  stop  to  the 
whole  affair. 

The  sum  of  the  whole  matter  is  this,  as  respecU  employes:  whenever 
a  bank  olBcer  or  confidential  employe  of  a  mercantile  house  Is  known, 
or  suspected  with  good  cause,  to  be  living  beyond  his  means,  or  to  be 
gambling,  or  Indulging  in  betting,  or  keeping  company  with  gambling 
or  betting  men,  or  apKoIating  in  atocha— the  sooner  the  matter  Is  taken 
in  hand  the  better.    For  delays  in  such  matters  are  always  dangerous. 


VltiPTEH  XXXL 


A  BAKXBUPTCY  LAW. 


Bakkem  Intehkstcd  i.v  the  Sl  i:  j,  i  i  -  Omen  ai.  f.Aw  Aro*r  riioM 
SurrsiiiNni  or  iMpiitioNti-  1>i:nTo>it— <  unhni  id  roR  VAiiiovf 
RiAioMi,  TiiouQii  lupKiwN  .i.:  .   \m):.i«nED   -El  i\i:-     or  Dmr.iuiiat 

ClAI'II — (JMKAT   AbUUS   rii.Yi.LOPt:ti — \l    I  AET   AsOl.-IIID. 

IT  should  be  stated  at  tlic     ati,  '  thnt  tl  tt  laL'^Ivcnc   vt   banka  i^  dealt 
with  in  ipeclal  claiun  '.f  tin-  'rsn.',(li..ii  UiuLinfj;   \,t. 

In  spite  of  the  •..mtion  with  t-Iik,'i  Lh^ir  b'iiii;eu  U  conducted, 
and  the  seruritlei  they  take,  imnkcrs  and  ut^rdiants  inuii-tlmca  find  them* 
iclvei  confronted  with  that  U|fly  ..ptcti  >,  tlie  htinhruptcg  of  their  cni- 
toncri.  This  if  eipt^ially  the  cost-  in  I'^om-  diif^oult  timet,  which,  as  all 
experience  ihowi,  are  sure  to  recur  ^ttl<  >:  iii'-  ctmrarrcial  pendulum  swinfi 
from  prosperity  to  adversity.  The  imiulvcncy  of  an  important  ciutonwr 
In  a  large  centre  may  bring  a  number  of  other  insolvencies  in  its  train 
so  that  a  banker  who  has  discounted  a  considerable  amount  of  bills  fnr 
a  wholesale  merchant  who  has  failed  may  find  himself,  bj  that  oj  ^ 
failure,  a  creditor  of  a  dosen  or  more  bankrupt  estates  in  addition. 

The  subject  Is  one  with  which  all  bankers  of  long  experience  becou. . 
unpleasantly  familiar:  dealing,  as  they  do,  with  all  sorts  and  conditioi.<^ 
of  debtors  In  all  sorts  of  times.  They  can  speak,  therefore,  with  somii 
measure  of  authority  on  the  subject.  For  this  reason,  whenever  ParH  >. 
ment  hat  taken  the  matter  seriously  in  hand,  and  an  important  bankrupic; 
law  has  been  submitted  to  it,  bankers,  as  well  as  merchants,  havR  been 
inrited  to  state  their  viewt  to  the  tpecial  committee  in  charge  of  the 
subject. 

There  are  many  causei  for  insolvency;  some  of  them  involving  morff 
or  lets  of  culpability  on  the  part  of  the  insolvent.  Such,  for  example, 
as  entering  on  business  without  experience  or  sufficient  capital ;  careless 
ness  in  carrying  on  business;  neglecting  to  insure;  neglecting  to  keep 
books;  foolishness  in  giving  credit;  Idleness;  neglect  of  business  for 
politics  or  pleasure;  extravagance;  speculation  in  outside  matters,  becom- 
ing guarantee  for  others,  and  so  on. 

Nine  out  of  ten  of  the  insolvencies  that  occur  are  traceable  to  one  or 
the  other  of  the  above  causes ;  and  clearly  put  upon  a  creditor  the  respon* 
dbllity  of  enquiry  as  to  the  cause,  whenever  an  insolvent  debtor  seeks  to 
be  released  without  paying  his  debts  in  full. 

If  a  trader  becomes  unable  to  meet  his  obligations  there  is  nothing 
in  either  Jaw  or  custom  to  prevent  him  approaching  one  or  more  of  his 
creditors,  and  asking  them  either  for  simple  dcUy^  for  s  formal  exten- 
«k>n.  or  for  a  release  on  terms  submitted.    No  law  is  needed  to  enable 


MS 


BANKING    AND    COMMERCE. 


the  application  to  be  made  and  dealt  with.  The  matter  >•  purely  one 
for  private  negoUationi ;  with  this  condition,  however,  that  no  engage- 
ment with  one  creditor  will  bind  any  other.  Nor  will  an  agreement  of 
a  majority  of  creditors,  in  meeting  assembled,  bind  any  of  the  reit. 
unless  under  the  provisions  of  an  Act  of  Parliament.  And  here  we  toucb 
the. fringe  of  that  complicated  and  diiEcult  subject  of  a  Bankruptcjf  Law. 
which  has  so  often  baffled  the  wisdom  of  legislatures  to  settle  on  equitable 
terms. 

It  is  well  known  that  Canada  as  a  whole,  after  having  experienced 
the  working  of  more  than  one  general  Insolvency  Law  during  a  course 
of  years,  finally  allowed  the  last  of  them  to  lapse,  and  has  never  enacted 
another.  But  as  there  arc  some  undoubted  disadvantages  in  thin  lack 
of  a  general  law,  it  is  desirable,  in  a  work  like  this,  to  consider  the 
general  principles  on  which  such  a  law  should  rest,  in  ease  it  occupie* 
Uie  attention  of  Parliament  again;  and  while  doing  so,  io  consider  how 
far  certain  laws  of  the  several  provinces  fulfill  the  requirements  of  the 
ease. 

In  order  to  deal  with  this  matter  it  will  be  needful  to  "begin  at  the 
beginning,"  and  consider  the  relations  of  debtor  and  creditor  as  they  are 
affected  by  the  ordinary  operation  of  law. 

Remedies  .\oainbt  Debtors. 

When  a  debtor  neglects  or  refuses  to  satisfy  U^'.  creditor,  the  latter 
can  invoke  the  power  of  the  law  to  compel  him  to  fulfill  his  contract. 
Every  debt  is  the  result  of  a  contract.  It  is  prima  facie  the  province  of 
law  to  enforce  the  fulfillment  of  contracts;  hence  a  creditor  can  call 
his  debtor  before  a  court,  state  his  claim,  prove  it  by  evidence  If  he  can, 
and  ask  for  judgment.  The  debtor  can  also  plead;  but  unless  he  can 
prove  that  the  claim  is  unjust,  either  as  to  time,  or  amount,  or  in  tome 
other  way,  judgment:  will  be  given  against  him.  It  is  needful  to  note 
that  the  powers  of  a  court  extend  simply  to  the  determination  of  the 
amount  due,  the  time  when  due,  and  to  the  enforcing  of  payment.  An 
ordinary  court  can  neither  grant  time,  nor  abatement,  nor  release. 

Following  upon  judgment,  it  the  seizure  of  the  debtor's  property  by 
an  officer  of  law,  its  sale,  and  the  payment  over  of  proceeds  to  the 
creditor.  If  the  proceeds  are  sufficient  and  the  debt  paid,  there  is  an 
end  of  the  matter.  The  law  has  fulfilled  its  object,  and  the  creditor  is 
satisfied.  But  If  the  officer  of  law  cannot  find  any  property  of  the  debtot, 
or  if  such  property  does  not  realise  enough  to  pay  the  debt,  what  thenf 

As  the  law  now  generally  exists,  and  has  done  for  some  time  past, 
it  can  do  nothing  more. 

But  under  the  old  administration  of  law  not  only  could  the  debtor's 
property  be  seised,  hut  hit  pfnon.  The  operation  of  law  was,  until  i 
recent  period,  exactly  as  It  was  1,800  years  ago,  as  described  in  a  graphic 
passage  in  the  Sermon  on  the  Mount.  Counsel  is  there  given  to  a  debtor 
••  follows,  Agree  with  thine  adrer$arif  qnichl}i.  wkiUt  thou  art  in  ih* 
mag  with  him;  leat  at  anif  time  the  advertarii  deliver  thee  to  the  Jmdge. 


A    BANKRUPTCY    LAW. 


H58 


and  the  Judge  deliver  thee  to  the  officer,  and  thou  he  out  into  prutm. 
VerUtf,  I  Majf  unto  thee  thou  thalt  by  no  meant  come  out  thence  until  thou 
hatt  paid  the  utmoat  farthing.  This  has  a  wonderfully  modem  sound, 
for  it  exactly  describes  what  would  have  taken  place  in  England  nearly 
up  to  the  middle  of  the  nineteenth  century.  The  debtor  could  be  put  in 
prisonj  not,  as  in  criminal  matters,  for  a  week,  a  month,  or  a  ycnr,  but 
until  the  debt  was  paid. 

The  difference  between  the  criminal  law  and  that  respecting  debtors 
was  remarkable  enough.  The  criminal,  at  the  expiration  of  His  term, 
was  a  free  man  and  discharged  of  all  obligation.  His  ImpriHonment 
constituted  a  sort  of  claim  to  discharge;  but  with  the  debtor,  imprison- 
ment operated  in  no  degree  towards  his  discharge.  Unless  the  creditor 
consented,  in  prison  he  must  remain  for  the  whole  of  his  natural  life. 
Numerous  cases  of  this  kind  did  actually  occur.  The  term  "rot  in  priaon" 
has  become  incorporated  into  our  language,  and  expresses  exactly  what 
occurred  in  many  cases  under  the  ordinary  law. 

English  literature  tells  only  too  truly  the  stories  of  suffering  endured 
by  insolvent  debtors  in  I.ondon  prisons;  for  one  singular  feature  of  this 
matter  is,  that  while  the  Government  was  obliged  to  support  ihieres  and 
burglars  while  in  prison,  no  support  whatever  was  provided  for  the 
Imprisoned  debtor. 

Origin  of  Insolvency  Laws. 

It  was  under  these  circumstances  that  the  first  movement  for  an  insol- 
vcncy  law  began.  The  object  was  primarily  the  releate  of  impritoned 
debtors;  and  the  title  of  early  acts  of  Parliament  on  the  subject  wa« 
"An  act  for  the  relief  of  insolvent  debtors;  the  relief  being,  not  to 
provide  them  with  necessary  food  and  comfort,  but  to  give  them  a  dis- 
charge from  prison  and  from  their  debts. 

Such  a  law,  of  course,  would  only  be  needed  to  compel  unwilling 
creditors  to  be  satisfied  with  what  the  ordinary  course  of  law  had  failed 
to  give  them.  Thus,  in  its  very  inception,  an  insolvency  act  contradicts 
and  traverses  the  ordinary  operation  of  law.  The  law  is  to  give  effect 
to  contracts,  but  the  effect  of  an  insolvency  law  is  to  break  them. 

But  the  cases  of  hardship,  and  even  of  cruelty,  were  so  undeniable 
that  the  force  of  public  opinion  became  strong  enough  at  length  1o  insist 
upon  a  way  of  legal  r?lief  being  opened. 

It  was  in  these  circumstances  that  the  first  not  for  the  Relief  of 
Insolvent  Debtors  was  passed.  That  act  provided  for  the  constitution  of 
a  special  conrt,  whose  functions  were  to  be  the  exact  opposite  of  an 
ordinary  one.  The  ordinary  court  was  for  the  administration  of  justice: 
this  was  for  the  administration  of  mercif.  And  to  it  the  unfortunate  and 
impecunious  (but  presumably  honest)  debtor  was  allowed  to  appeal  and 
plead  for  hfs  release  from  prison.  His  creditors,  as  a  matter  of  course, 
were  allowed  to  appear  also,  and  to  show  cause  to  the  contrary,  If  they 
were  able. 

If  the  creditor  could  prove  that  his  debtor  was  keeping  back  money 


954 


BANKING    AND    COMMERCE. 


or  cffectH,  or  tlint  there  was  an  element  of  fraud  in  hJi  conduct,  or  that 
hii  itatementB  had  been  characterized  by  lying  or  deceit,  the  court  had 
little  mercy  to  show  him.  It  was  not  for  biich  as  he  that  the  court  was 
cieated.  On  the  other  hand,  if  the  debtor  could  prove  that  he  had  don< 
what  he  could,  or  that  he  had  no  friends  upon  whom  he  could  cnll  for 
Klief,  that  there  was  no  fraud  or  misrepresentation  in  his  dealings,  and 
particularly  that  he  was  suffering  in  body  and  mind  by  continued  impris- 
onment, the  court  would,  in  many  cases,  open  the  prison  doors  and  allow 
him  to  go  out  free. 

But  if  nny  of  the  jolly  fellows  of  the  *'Jingle"  or  "Smonglc"  sort 
had  the  impudence  to  apply  to  the  court,  they  would  be  laughed  out  of 
it  and  sent  back  to  confinement.  In  prison  they  deserved  to  be;  and  in 
prison  they  must  remain. 

Such  wns  the  general  idea  embodied  in  the  iirst  insolvency  legislation. 
It  was  for  the  administration  of  mercy. 

It  was  n  matter  of  course  that  a  class  of  attorneys  would  devote 
themselves  to  cases  of  this  kind,  and  be  known  as  men  who  coitld  get 
debtort  out  by  passing  them  tlirongh  "the  court."  The  ways  of  this 
class  and  the  incidrnta  arising  out  of  their  profession  are  accurately  and 
humorously  dealt  with  in  the  pages  of  many  of  our  novelists.  In  course 
of  time  a  class  of  houses  of  temporary  detention  arose,  called  "sponging- 
'  houses,"  where  a  debtor  nnder  arrest  was  allowed  to  remain,  under  strict 
con6nement  for  a  few  days,  to  give  him  oppor' unity  of  effecting  a  com- 
promise with  his  detaining  creditor,  or  calling  upon  his  friends  to  help 
him   with  money. 

It  cannot  be  too  emphatically  noted  that  the  whole  tauon  d'etre  of 
the  law  for  the  discharge  of  debtors  against  the  will  of  their  cri-ditors,. 
was  this  very  power  of  impritonment.  But  for  that  it  ia  very  doubtful 
if  such  a  law  would  ever  have  been  enacted. 

Thus,  when  imprisonment  for  debt  wns  abolished,  it  might  n-iturally 
be  supposed  that  insolvency  laws  would  be  abolished  with  it. 

But  in  the  complicated  circumstances  under  which  credit  is  given  in 
moderi'  trading  and  banking,  it  was  still  deemed  desirable  to  retain  some 
Other  mode  of  settling  affairs  between  debtor  and  creditor  than  the 
ordinary  process  of  law  afforded.  The  dominant  idea  of  this,  however, 
had  reference  to  a  class  of  evils  that  scarcely  existed  in  former  days. 

For  example,  it  was  sometimes  the  case  that  a  debtor  who  had  many 
creditors  would  treat  some  of  them  unfairly;  giving  a  preference  to 
one  or  more  when  he  knew  himself  to  be  insolvent,  or  paying  one  Ui 
full,  and  leaving  the  rest  to  scramble  for  the  balance  of  his  estate  Thf 
ordinary  machinery  of  law  might  itself  be  abused  to  this  end ;  for  on 
becoming  embarrassr'd,  and  several  creditors  suing  a  debtor,  he  coul'* 
defend  one  action,  and  allow  judgment  to  be  entered  f"r  another.  For 
this  the  law  afforded  no  redress. 

In  other  cases,  a  trader,  knowing  himself  to  be  unablr  to  pay  hi* 
debts  in  full,  might  fro  on  trading  at  a  Iosb,  wasting  morr  and  more  of 
his   estate    (or   perhaps   secreting  money),   until    it   was    wasted    entirely 


A    BANKRUPTCY    LAW. 


«\Tay;  leaving  nothing  for  his  creditors  to  realise  upon.  Here,  again, 
the  law  afforded  no  means  of  redress.  All  that  any  creditor  could  do 
was  to  refuse  to  sell  the  party  more  goods,  and  to  sue  for  balance  due. 

But  the  process  of  ordinary  suits  affords  so  many  opportunities  of 
delay,  that  a  whole  estate  might  be  wasted  during  the  progress  of  one 
of  them. 

On  the  other  hand,  a  creditor  might  under  some  circumstances  obtain 
what  is  known  as  a  "snap"  judgment  against  a  debtor,  who  would  be 
compelled  to  submit  to  the  sale  of  his  goods  at  a  sacrifice  by  one  creditor, 
leaving  him  indebted  to  many  more,  while  the  means  of  paymrnl  had 
been  taken  away. 

For  these  and  for  other  reasons,  there  arose  a  desire  on  thn  part 
of  creditors  for  the  enactment  of  a  law  which  would  prevent  these  evils, 
and  ensure,  first,  an  equitable  division  of  an  insolvent  estate;  i^ccond, 
the  power  of  stopping  an  insolvent  debtor  from  wasting  his  estate ;  third, 
the  prevention  of  unjust  preferences;  fourth,  the  punishment  of  fraud- 
ulent debtors. 

These  were  the  primary  objects  thought  of  when  the  subject  of  insoK 
venry  legislation  was  broached  as  applied  to  debtors  who  were  person* 
ally  free.  But  though  no  act  could  now  properly  be  styled  "An  dct  for 
tlie  relief  of  Insolvent  Debtors;"  that  is,  by  releasing  them  from  prison, 
no  sooner  was  insolvency  legislation  broached,  mainly  in  the  interest  of 
creditors,  than  pleas  began  to  be  put  in  on  behalf  of  the  debtor.  There 
were,  it  was  alleged,  other  forms  of  relief  that  were  needful. 

Thus,  it  was  urged,  why  should  a  man  not  be  relieved  from  the  burden 
of  his  debts  when  he  had  become  unable  to  pay  them  and  surrendered 
his  assets?  What  equity  was  there  in  taking  forcible  possession  of  a 
trader's  effects  and  dividing  them  amongst  his  creditors,  unless  he  were 
discharged  from  his  debts?  And  why  should  a  man  be  forcibly  pre* 
vented  from  carrying  on  his  business,  when  the  ordinary  courts  had  not 
been  appealed  to  for  redress? 

These  and  other  pleas  for  the  debtor  were  put  forth  for  considerar 
tion  whenever  it  was  proposed  to  protect  the  creditor  by  a  bankruptcy 
law.  Indeed,  it  was  held  by  some  that  an  insolvency  law  was  nn  insol- 
vency law  st  all  if  it  did  not  provide  on  some  terms  for  an  insolvent's 
ditcharge.  They  argued  that  the  very  groundwork  of  such  legislation 
was  to  relieve  ike  inaolrent,  not  to  assist  the  creiiitor.  The  creditor  is 
sufficiently  protected,  it  was  ar^nied,  by  his  power  to  get  judgment  and 
seize  his  debtor's  goods;  why,  then,  consider  him  alone  in  the  matter? 
To  which  the  obvious  reply  was.  that  former  acts  for  the  relief  of  the 
insolvent  debtor  had  relation  to  different  circumstances.  It  was  to  prevent 
cruelty  nnd  oppression,  snd  had  always  been  preceded  by  the  obtaining 
an  ordinary  judgment  at  Inw,  and  the  declaration  that  the  debtor  had  no 
seisable  goods.  But  to  discharge  a  debtor  against  the  will  of  his  creditors, 
or  any  of  them,  and  while  he  was  perfectly  at  liberty,  personally,  wa» 
contrary  to  thf  first  principles  of  justice.  Even  to  enable  his  property  tn 
be  seised  and   divided   amongst  his  creditors  was  no  vnlid  ground  for 


«56 


BANKING    AND    COMMERCE. 


claiming  a  discharge;  for  his  property,  if  he  w&s  insolvent,  really  belonged 
to  his  creditors  in  any  case. 

It  was  further  argued,  that  the  reasonable  course  for  a  debtor  to 
pursue  when  he  could  not  pay  his  debts,  was  to  approach  his  creditors 
singly,  or  call  a  meeting  of  them,  and  offer  to  pay  what  he  could,  and 
ask  for  a  discharge.  They  would  be  acquainted  with  his  affairs  and 
with  himself,  i  oaving  done  business  with  him,  and  might  be  trusted 
to  act  reasonably  according  to  circumstances.  And  the  necessity  for 
obtaining  the  consent  of  each  of  his  creditors  would  be  an  effectual  checlc 
upon  that  scheming  to  effect  an  unjust  settlement  which  was  so  great  a 
temptation  when  diacbai-ge  could  be  granted  without  that  consent. 

Principles  op  Isbolvencv  Legislation. 

Such  were  the  arguments,  pro  and  con,  that  arose  at  the  outset  of  any 
proposal  for  insolvency  legislation. 

Yet  there  was  much  on  which  all  parties  were  agreed.  Thus,  ull  were 
agreed  that  a  law  should  be  passed  to  prevent  or  nullify  preferences; 
and  all  were  agreed  to  what  necessarily  followed,  viz.,  that  if  a  person 
were  really  insolvent  and  his  effects  were  divided  amongst  his  creditors, 
they  should  be  divided  pro  rata. 

But  there  was  division  of  opinion  as  to  the  advisability  of  stopping 
■  person  who  was  carrying  on  his  business  when  a  suspicion  arose  that 
he  was  wasting  his  estate;  also  as  to  whether  the  law  should  undertakr 
to  discharge  a  debtor  at  all  if  any  of  his  creditors  objected.  If  the 
principle  of  a  discharge  were  agreed  to,  there  was  great  diversity  of 
opinion  as  to  its  terms,  one  class  of  legislators  leaning  towards  the  debtor, 
and  desiring  his  "relief;"  the  other  contending  for  the  claims  of  the 
creditor,  and  that  strict  justice  should  he  the  object  aimed  at. 

Another  point  of  division  was  as  to  creditors  holding  security.  The 
questions  as  to  this  were  found  to  be  numerous  and  of  an  intricat<:  char- 
acter; secured  creditors  naturally  pressing  their  claims  for  whit  they 
considered  to  be  equitable,  against  the  views  of  others  who  were  disin- 
clined to  give  secured  creditors  any  consideration. 

The  most  diflficult  question  under  this  head  arose  in  connection  with 
baniters  who  were  claiming  on  the  estate  of  a  wholesale  merchant,  for 
whom  thev  had  disconnted  the  bills  of  nuuierons  customers.  So  long  »s 
the  merchant  was  solvent,  the  bank  hod  no  correspondence  with  his  cus- 
tomers. But  the  mmnrnt  he  went  into  insolvency  it  became  nece&sary  to 
deol  directly  with  thr  parties  to  this  discounted  paper.  There  might  be 
fifty  of  tbem;  there  imght  be  one  or  two  hundred;  and  those  living  in 
all  parts  of  thr  Doniiuon  or  elsewhere.  As  a  nrnle,  many  of  them  would 
be  dependent  imen  iht  principal  house,  and  soiv  of  these  would  go  into 
insolvency  alsa.  TIwb  the  bank  would  find  tnelf  a  creditor  ot  many 
subsidiary  inaolnst  eMates;  while  a  certain  proffsrtion  of  the  rest  would 
be  cmbarr^iBsed  by  the  demand  of  payiw^ts  at  maturity,  and  lequest 
time,    pmsihiy    aUo    offering    tfmrity    by    way    of    second    mortrf^e    or 


A   BANKRUPTCY    LAW. 


«37 


mdonement  With  auch  an  eitr.ordin»ry  mui  of  compliMUon.  nrUing 
out  of  the  fmUore  of  a  aingle  wholnale  home,  the  winding  up  of  it> 
affair!  would  aometimea  occupy  yean;  and  what  would  be  the  banker'a 
final  claim  upon  the  bankrupt  eatale  of  hia  cuatomer,  it  would  be  impoa- 
aible  to  aay.  Under  the  conunon  law  bankera  had  a  right  to  claim  upon 
erery  aingle  bankrupt  estate  for  the  fuU  amount  of  ita  diacounted  paper, 
and  to  collect  from  it  all  that  waa  poaalble,  claiming  upon  one  eatate 
after  another,  until  the  entire  masa  of  paper  waa  paid  in  full.  ,Vnd  if 
it  waa  claimed  that  in  all  equity  a  bank  should  value  ita  aecurities  and 
claim  for  the  balance,  the  bank  could  point  out  that  while  it  waa  compara- 
tively eaay  to  value  a  aingle  mortgage  or  even  a  aingle  endoraement,  it 
would  be  pra-ticaUy  impoaaible  to  value  aecurity  conaiating  of  claima 
upon  numbers  of  other  people,  some  of  them  already  inaolvent,  and  aome 
who  might  posaibly  become  ao. 

The  whole  subject  of  insolvency  briatlea  with  difficulUea;  but  not- 
withatanding  thia,  more  than  one  strong  Government  in  Canada,  and  alMl 
in  England  and  the  United  Statea,  haa  taken  up  the  aubject  and  carried 
through  bankruptcy  bills.  But  the  last  of  such  bills  in  Canada  came 
to  an  end  about  fifteen  yeara  ago,  and  although  atrenuoua  endeavora 
have  been  made  to  carry  others  through  Parliament,  no  Government  haa 
bad  the  courage  to  take  the  matter  up  and  carry  a  biU  through  as  a 
Oovemmenl  measure. 

For  thia  inacUvity  varioua  reasons  have  been  assigned.  The  iiuMt  im- 
portant of  theae  was  the  undoubted  fact  that  in  actual  operation  the 
former  bill  came  to  be  looked  on,  pracUcaUy,  aa  a  bUl  for  the  promotion 
of  into(eencjr.  A  claaa  of  men  waa  developed  in  connecUon  with  it,  as 
under  other  inaolvent  acts,  who  made  a  .special  business  of  assisting  em- 
barrassed debtors  to  obtain  a  discharge.  That  there  is  l  legitimate  field 
for  acconntanta  and  commercial  lawyers  in  connection  with  insolvent 
estates,  there  can  be  no  manner  of  doubt,  whether  under  an  insolvent  law 
or  without  it.  But  under  the  last  act  abuses  crept  in,  and  it  came  to  be 
generally  known,  that  by  such  and  such  intervenUon,  debtors  could  obtain 
«  discharge,  with  the  least  tronble,  the  least  expense,  in  the  shortest  time, 
and  without  interruption  to  their  business.  Above  all,  the  prospect  was 
held  out  that  after  a  discharge  was  oblain-d  the  debtor  would  have  a 
auhstantlal  capital  left,  and  be  enabled  to  ca,ry  on  hia  huaineas  in  com- 
fort and  security.  In  the  opinion  of  many  obsorvers,  the  root  of  the  mis 
chief  was  in  the  fact  that  a  discharge  could  be  obtained  under  the  act  if 
a  de'jtor's  estate  yielded  only  fifty  cents  in  the  dollar.  The  operation  of 
this  clause,  it  was  said,  waa  to  «i  a  atandard.  The  law  of  th<  land  under 
it  recognised  that  fifty  cenU  in  the  dollar  was  a  reaaonable  amount  for  a 
debtor  to  pay.  If  he  offered  that,  he  might  be  recognised  aa  an  honor- 
able man.  If  a  creditor  was  not  satisfied,  and  demurred  or  opposed  a  dis- 
charge, the  low  could  override  his  opinion,  and  compel  acquiescence,  un- 
leaa,  indeed,  actual  fraud  was  proved. 

An  anomaloua  condition  indeed  for  the  law  to  c.eate;  and  it  ia  well 
to  note  how  it  came  about;  alao  how  It  came  to  be  to  generally  abuaed. 


d58 


BANKING    AND    COMMERCE. 


When  thii  diacturge  clause  wu  under  consideration  by  a  parliavenUry 
committee,  and  it  wai  contended  that  fifty  cents  was  too  little,  the  reply 
was,  that  there  were  so  many  expenses  connected  with  insolvency,  and  so 
serious  a  depreciation  when  goods  and  property  were  sold  by  an  ansignee, 
that  iifty  cents  in  the  dollar  was  a  fair  residuum,  and  proved  the  failure 
to  be  honest.  The  ar^ment  was  plausible,  and  the  fifty  cents  clause  was 
adopted.  But  it  was  also  provided  that  if  the  debtor,  after  surrcrdering 
his  estate  (which  he  cniild  do  without  stopping  his  business)  succeeded  in 
inducing  a  certain  porrion  of  his  creditors  in  number  and  amount  *o  con- 
sent to  a  compromise  and  accept  fifty  cents,  a  discharge  could  be  obtained 
in  spite  of  the  opposition  of  the  rest. 

Abuses  ARisiNa  Under  the  Law. 
Here  it  was  that  the  root  of  the  ensuing  mifchief  lay.  For  the  idea 
speedily  hefcan  to  prevail  that  there  was  no  dishonor  or  discredit  to  a  man 
who  had  failed,  if  he  had  only  paid  fifty  cents  in  the  dollar.  And  this 
was  specially  the  case  when  difiicult  times  supervened,  and  bad  debts  rose 
above  the  average.  Under  these  circumstances  many  traders  who  were  in 
temporary  straits,  but  were  perfectly  solvent,  began  to  see  an  easy  way 
out  of  their  difficulties,  not  by  making  an  assignment  and  allowing  their 
sto^fc  to  be  sold  and  their  accounts  collected  by  an  assignee,  but  by  th* 
much  easier  and  economical  process  of  offering  a  compoiilion  of  fifty 
cents  or  more,  under  the  act.  Thus,  a  large  expense  would  be  saitd,  and 
the  business  could  go  on  in  the  meantime.  The  assignee  or  accountant 
would  receive  his  commission,  and  act  as  the  insolvent's  friend  in  per- 
suading the  requiwte  number  and  amount  of  creditors  to  consent. 

It  was  not  difficult  in  ordinary  cases  for  this  to  be  secured,  for  the 
alternative  was  that  a  large  additional  expense  would  be  incurred,  much 
time  lost,  and  goods  slaughtered,  with  the  doubt  whether  some  jMirtion 
of  the  estate  could  not  be  concealed,  and  as  a  final  result  a  smalli^r  divi- 
dend than  fifty  cents  declared. 

The  result  generally  was,  that  the  insolvent  who  had  got  his  stock 
into  his  hands  by  paying  fifty  cents  in  the  dollar  for  it,  was  able  to 
undersell  his  nelghtmrs  who  had  hitherto  paid  their  debts  in  f.ill-  A 
further  result  then  followed,  vir.,  that  some  of  his  neighbors,  whosp  trade 
was  interfered  with,  began  to  think  of  passing  through  the  same  process 
themselves.  This  they  not  seldom  did,  for  money  was  to  be  made  by  it; 
moreover,  less  and  less  discredit  came  to  be  attached  to  it,  until  in  time 
the  idea  of  discredit  had  almost  passed  away. 

Thus,  the  virus  of  mischief  spread  until  the  trading  community  was 
honeycombed  with  it;  and  a  wholesale  merchant  couid  nev^r  be  sure 
which  of  his  customers  would  approadi  him  next  with  an  offer  of  com- 
promise. 

What  an  opportunity  this  condition  of  things  aff"orded  to  the  debtot 
whose  sense  of  honiMr  was  not  of  the  strongest,  it  is  needleu  to  point  out. 
Suffice  to  say,  that  between  the  weak-kneed  debtor  who  was  temporarily 
cnbarrassedi  i»t  could  and  would  h&vt  paid  his  debts  but  for  induce- 


A    BANKRUPTCY    LAW.  gjj 

mtnU  to  compromi.c  and  the  fraudnfcnt  debtor  who  laid  hlnuelf  out 
deliberiilely  to  felpi  embarruMment  md  plunder  hU  crediton,  the  mer- 
cuitile  eommunitT  bceanie  lo  dilgiiited  with  the  operation  of  the  act  that 
a  iinivenal  lenie  of  relief  wni  fell  when  it  wai  abolilhed. 

DirFicuLTiM  1.N  Framing  a  Bankruptcy  Law. 
It  ha.  been  .talrd  that  it  i.  extremely  difBcult  to  frame  an  equiUble 
and  aeriiceablc  bankruptcy  law.  The  difficulUea  may  be  atated  aa  foUowa 
Firit,  to  avoid  making  bankruptcy  so  ea.y  aa  to  tempt  unicmpulou. 
men  to  embrace  it  who  are  able  to  pay  their  debt..  For  thia  reaion  it  i. 
that  the  diacharge  clauac  is  the  one  which,  more  than  nil  the  re.t,  require* 
conaideration.  ^ 

Second,  to  avoid  making  the  administration  of  a  bankrupt  estate  av 
eipensive  aa  to  damage  both  the  debtor  iind  his  creditors. 

Third,  to  deal  with  the  question  of  the  security  given  to  a  creditor 
previous  to  bankruptcy  so  as  to  avoid  doing  injustice  on  the  one  hand  to 
the  general  body  of  creditors,  or  on  the  other  to  the  secured  creditor  him- 
Mlf.  In  this  case  the  difficult  question  is  whether  the  consideration  given 
for  tlie  security  was  equitable  and  reaaonable. 

Fourth,  the  mode  of  adjusting  the  ranking  of  creditors  holding  secur- 
ity requires  special  care  and  some  technical  knowledge. 

Fifth,  it  is  found  difficult  in  practice  to  frame  a  bankruptcy  law  which 
has  not  the  effect  of  creating  a  class  of  persona  whose  interest  is  to 
promote  insolvency,  and  suggest  it. 

Silth,  it  is  also  difficult  to  frame  penally  clauses  which  will  not  bear 
too  severely  on  those  who  have  done  wrong  through  carelessness  or  inad- 
vertence, and  not  severely  enough  upon  traders  who  have  knowingly  and 
deliberately  been  guilty  of  actual  fraud. 

The  great  objects  to  be  obtained  by  a  bankruptcv  law  have  been 
treated  in  the  foregoing  pages,  but  may  be  brieHy  snmmariaed  in  this,  via.- 

(1)  To  prevent  preferences  being  given  to  one  or  more  creditors  at  th^ 
expense  of  the  rest. 

(2)  To  prevent  debtor,  wasting  or  making  away  with  their  estate 
when  getting  into  difficulties,  and  apparenUy  becoming  unable  to  pay  their 
debts.  Here  a  distinction  should  be  made  between  being  unable  to  meet 
engagements  at  the)  become  due,  and  inability  to  pay  debU  in  full  at 
all.  It  was  a  great  error  in  some  former  proposed  bankruptcy  acU  in 
Canada  to  declare  that  a  man  was  insolvent  if  he  could  not  pav  his  debts 
OS  thet/  became  due. 

(3)  To  insure  equitable  and  economical  distribution  of  bankrupt!' 
estates;  and 

(4)  To  enable  discharge  of  competent  and  worthv  debtors  to  be  hail 
on  .uch  terms  as  will  not  on  the  one  hand  encourage  idleness,  extrava- 
gance, and  bad  business  conduct  on  the  part  of  the  debtor;  and,  on  the 
otter  hand,  will  prevent  harshness  and  cruelly  on  the  part  of  one,  or  a 
•mall  number  of  creditors.    .\  discharge  clause  should  be  so  framed  alas 


too 


BANKING    AND    COMMERCE. 


u  ret  l«  make  It  >n  object  for  a  trader  to  fall  and  make  money  oat  at 

If  a  Unkrnptcy  law  il  ever  iubmitted  to  a  Legiilatare  In  Canada,  lu 
memben  will,  of  conne,  comider  the  former  lawl  on  the  iubject,  thdr 
eicelleneiei  and  defccli,  and  why  they  were  .offered  to  eome  to  an  end! 
uid  alio  the  bankraptey  lawi  of  other  commerelal  countrlei,  and  partir 
nlarlT  of  Great  Britain  and  the  United  State.,  a«!ertoinlng  whether  .och 
haveworked  wtUfoctorily,  and  are  aceomplLhing  the  end  aimed  at 

It  would  be  w,  11  al.o  to  eontider  whether  a  bankropt  law  of  limited 
,eope  might  not  he  .'  rable;  .uch,  for  example,  a.  one  «•««  """"  pre- 
Tent  preference.,  ,  ,l.h  fraud,  .lop  waate,  make  equitable  d-tnbution, 
but  not  give  a  'V.   .  ,.ge;  leaving  that  for  «*Uement  between  the  debto. 

and  hi.  creditoa.,  i      i  _ 

It  might  be  worthv  of  con.ider.tion  also  whether  a  bankruptcy  law 
might  not  be  paMcd  with  a  limitation  of  time,  an  idea  that  haa  com- 
mended it.elf  to  vorlou.  legLlalor.. 

SoMMAHV  or  Tin  Amcbicah  BANKaorrcY  Law. 
Thi.  law  i.  a  general  one  for  the  whole  Union.  It  i.  comprehen.lre, 
„d  fairly  cover,  oil  the  point,  to  be  con.ldered.  It  i.  prec«  in  regard 
to  matter'.  wlUch  were  not  clearly  de...  with  in  former  Canadian  law.. 
It  cmplia.i.f.  in  wme  of  11.  clauae.  the  important  di.linction  between 
tolmtar)  and  inrolaatarsr  bankruptcy. 

But  the  dirtinction  ia  not  .ufficiently  prcerved  throughout  the  act,  u 
will  be  apparent  to  any  one  who  carefully  read.  it. 

Amongjrt  the  numerou.  provi.ion.  of  thi.  act,  the  following  are  the 
taoat  noticeable:  rub 

(I)  The  orrfinorv  coarl.  are  given  juri.dlction  in  ca.e.  of  bank- 
mptev,  and  no  .peciil  court  for  dealing  with  them  i.  er,«led  by  the  Mt 

li)  The  word,  bankrupt  and  bankruptcy  are  u.ed  throughout,  ana 
not  in«.lvent  and  ln«>lvency.    There  are  good  reawn.  for  thi.. 

(S)  Former,  and  wage-earner,  cannot  be  made  involunUry  bank- 
rupts; though  they  may  be  embraced  within  the  proviaion.  of  the  law,  if 
they  arc  willing  .0  to  be.  . 

(4)  A  bankrupt  may  offer  a  compoaition  only  after  a  meeting  of 
creditors,  or  examination  in  open  court. 

(5)  A  di«harge  may  be  agreed  to,  if  accepted  by  a  simple  m.ijority 
of  his  creditor.,  both  in  number  and  amount.  No  maximum  i.  n,med  of 
either  as  necessary;  and  no  minimum  of  the  amount  to  be  paid  or  reali.ed. 
But  no  discharge  can  be  confirmed  unle«  the  amount  of  the  con-PO''"?" 
fnd  all  prefer«d  daim,  and  charge,  .hall  have  b'en  orla^J,  po.rf  «^ 
This  is  an  important  point,  and  differ,  from  what  l.a.  hitherto  prevailed 

("eTThe  judge  1.  required  to  confirm  a  dlKharge,  'f  "«■*"*'  (^ 
a„t  «  i.  for  the  Lt  mSert  of  the  creditor.;  (2)  th.t  no  f r.»l  ha.  been 
Emitted,  or  duty  owing  to  them  neglected;  (S)  that  the  offer  and  it. 


A   BANKRUPTCY   LAW.  gffi 

•eeepUnce  hare  bcm  made  in  good  failh,  and  not  procured  bj  improna 
nam.  r    r— 

(7)  But  a  compotllion  may  be  Kt  ailde  upon  application  of  intcntlad 
parti«  within  ill  monthi,  if  it  con  be  made  apparent  that  fraud  waa  uaed 
b  the  procuring  of  it,  and  that  certain  Itnowledge  hai  come  to  the  peti- 
tioner! after  the  confirmation  of  the  diicharj(e. 

(8)  If  a  perion  who  haa  been  proceeded  againat  in  bankruptcT  denies 
that  he  ii  inaolient,  he  ii  entitled  to  have  a  Mai  bf  juri)  ai  to  whether 
he  ii  30  or  not.  Thii  ii  a  provialon  we  have  never  had  In  Canadian  law, 
Ita  wHdom  ii  qmntionable,  conildering  how  triala  by  jury  In  civil  caaM 
often  work. 

(9)  The  qucition  of  prcferencet  and  lecuritici  is  fully  and  equiUblr 
dealt  with. 

\mor,7«t  other  clauaei  relating  thereto  are  the  following: 

(o)  The  claimi  of  enxHton  who  have  received  preferrneei  shall  not 
be  allowed  unless  such  creditors  shall  surrender  their  preferences. 

(6)  If  a  creditor  has  received  preference  within  four  monthi  of 
bankruptcy,  and  hod  reason  to  believe  that  it  was  inlcnJed  as  a  prefer- 
ence, it  shall  he  voidoble,  and  the  amount  may  be  recovered.  But  if  ■ 
creditor  has  been  preferred,  and  afterwards"  in  good  faith  gives  the 
debtor  further  credit,  this  new  credit  may  be  set  off  against  the  amount 
recoverable. 

(<■)  .Secured  ereditor»  eon  only  elnim  after  deducting  wh;it  the  loiirj 
may  consider  the  value  of  their  security. 

Clauaes  follow  as  to  the  mode  in  which  the  value  of  such  security  if 
to  be  determined. 

(10)  The  administration  of  estates  is  to  be  by  olRciall  of  two  claisea; 
namely,  truatett  and  refereet. 

These  correspond  somewhat  to  the  liquidators  and  inipeetori  under 
former  Canadian  acts;  but  they  apenr  to  constitute  in  b^ilh  caiei  an 
official  clan  who  give  lecurity  to  the  court  before  entering  npon  their 
dnlies.  These  duties  arc  minutely  set  forth  in  the  act.  But  there  is  a 
lingular  wont  of  preciseness  in  the  directions  how  on  estate  is  to  be 
realized. 

The  general  underlying  principle  seems  to  be  that  the  trustees  shall 
have  the  actual  handiing  of  the  property  constituting  the  estate;  while 
the  referees  are  an  advisory  and  directing  body,  for  the  purpose  of  being 
a  cheek  upon  the  actions  of  trustees.  It  is  made  the  duty  of  the  referee 
to  declare  dividends,  and  to  deliver  the  dividend  sheets  to  trustees;  also 
••  examine  all  the  schedules  of  the  property  of  bankrupts  together  with 
lists  of  creditors. 

(n)  The  compensation  to  the  various  classes  of  oScers  Is  precisely 
defined.     Economy  is  evidently  aimed  at. 

(IS)  The  first  dividend  Is  to  be  declared  within  thirty  days  if  the  net 
money  on  hand  amounts  to  five  per  cent,  of  the  allowed  claima.  Subse- 
quent dividends  shall  be  declared  upon  like  terma,  and  as  often  as  the 


262 


BANKING  AND   COMMERCE. 


•niount  ilull  equal  («■  ptr  mhI.    Bat  thej  inajr  be  decUrrd  oftener,  u4 
in  •inillei  ptoportloiu,  It'  the  judge  ahall  lo  order. 

(IS)  Offence*  are  »erjr  earefully  ict  out,  and  apply  to  the  oSeialt 
and  colluiive  crrditon  ai  well  ai  to  bankrupti  themaelvei. 

Altogether  the  act  ii  one  which  e»ldence«  much  care  and  thought  to 
ill  compilation,  and  ia  well  worthy  of  ttudy  if  the  goTcmment  of  Cauda 
at  any  time  ihould  attempt  lo  pan  a  general  law  upon  the  nbjaot 

It!  principal  defect,  and  a  very  leriouJ  one  It  ii,  lice  In  the  facllitiet 
It  affordf  for  a  debtor  obtaining  an  easy  diacharge. 

When  euch  a  diacharge  can  be  granted  on  the  conaent  of  a  bare  ma- 
jority in  number  and  amount  of  creditora,  and  without  any  limiUtlon  aa 
to  the  amount  of  the  conipoailion  or  dividenda  declared,  the  door  la  open 
to  aerioua  abiiae,  eapecially  aa  it  la  provided  that  a  diacharge  may  be  con- 
firmed bv  the  ii>t  of  a  aingle  judge. 

The  act  ia  alao  aomewhat  defective  in  not  maintaining  throughout  all 
its  dauaea  the  neceaaary  diatinction  of  procedure  and  adminiatratton  in 
the  caae  of  volunUry  and  involuntary  bankrupta. 

Thia  act  ia  atated  by  men  of  experience  to  work  well  on  the  whole, 
Ihough  it  ia  not  economical  in  ita  operation. 

The  following  general  auggeallona  on  the  aubject  are  the  result  of 
experience  and  may  be  found  worthy  of  conaideratlon. 

(I)  If  legialation  ia  attempted,  it  will  be  well  to  conaider  from  inkom 
the  prmure  for  i(  originatea;  what  claaa  in  the  community  ia  calling  for 
it!  what  claaa  ia  auffcring  by  reaaon  of  the  want  of  It.  Ia  it  the  debtor 
class;  or  ia  it  the  creditor  claaa?  And  what  haa  each  of  them  to  aay  on 
the  aubject?  A  aettlement  of  auch  qneationa  will  determine  much  of  the 
general  character  of  the  bill. 

Beaidea  thia,  it  ahould  be  considered,  aa  preparation  proceeds,  what 

dangers  msT  arise  from  any  unwise  and  ineautioua  provUiona  of  the  act! 

and  what  were  the  reaaona  for  former  legialation  having  been  abrogated? 

(S)  The  general  framework  of  a  Bankrupt  Law  might  be  on  the 

following  lines: 

I._The  words  should  be  fcaaimpt  and  brnkruftc).  and  not  intolvnt 

and  iasoleeacjr. 

II.— A  clear  distinction  should  be  made  throughout  between  the  pro- 
cerdinga  in  tlie  caae  .-f  voluntary  aaaignmenta  and  compoaitions  by  honest 
deblora;  and  the  forcible  meaaurea  neceaaary  In  dealing  with  a  debtor 
who  ia  wasting  Ha  ealate,  giving  preferencea,  accreting  hU  effecta,  or 
committing  franda,  aingly  or  in  collusion. 

in. The  procedure  throughout  ahould  alwaya  keep  in  view  one  or 

other  of  the  objecta  aimed  at;  that  ia,  either  to  afford  facilitiea  for  a 
competent  and  honeat  debtor  lo  continue  in  buaineaa  after  dealing  equit- 
ably with  hia  creditora;  in  which  caae  he  might  retain  practical  poaaeaalon 
of  hia  catate,  or  that  the  law  ahould  aim  at  forcibly  depriving  a  diahoneat 
and  incompetent  peraon  of  hia  estate;  realiaing  it  economically,  distrib- 
uting it  equiUbly,  and  closing  out  the  business  altogether. 

IV.— Administration  In  bankruptcy  should  be  by  the  ordinary  courU; 


A    BANKRtPTCY    LAW. 


863 


kit  provltkni  to  be  in>de  for  iptcUl  ttHingt  .1  dtlaite  tima  for  dealuic 

with  lUCA  CAMt. 

v.— A  claM  of  oSclali  to  d»l.  with  bankruptcr  "«.  ihould  not  be 
CKated  by  law. 

VI.— Liqulditon,  in  ill  cam,  thould  gin  utiaftctory  iKutitT  Their 
reninaeraUon  tboold  be  itrictly  defined,  and  power  giren  to  the  court  u 
d'  il  with  colliuive  or  unrraionable  rhargei. 

^"•~"  •  compoiition  contalni  preference  claiuei,  it  ihoold,  ipn 
fmcio,  be  thrown  out,  and  the  attempt  dealt  with  ai  a  ■peeiei  of  fraud. 

VIII.— Securitiea  ihould  be  accurately  deflned;  and  procedure  with 
mpect  to  them  let  out  with  clearnrH  and  preeiflon,  yet  wltliout  haraaa- 
lag  unnaionably  thoie  who  have  an  equitable  claim  to  Ihem.  On  the 
other  hand,  it  ihould  compel  lurrender  of  tuch  ai  have  been  acquired 
Improperly. 

IX.— DiJcharge  ihould  In  no  eaie  be  granted  nnlcai  concurred  in  by 
•t  leait  a  majority  of  threc-fourthl  In  number  and  amount  of  creditor., 
and  a  net  reault  of  MTenty-five  per  cent  to  the  creditor!  hai  been 
realiied. 

X-— PenalUei  to  be  preclie,  applicable  to  deflnite  acta  of  wrong- 
doing, and  aevere  enough  to  be  deterrent 

In  conaidering  the  queition  of  diieharge,  too  much  weight  ihould  not 
be  giTen  to  the  plea  that  if  a  man  cannot  get  a  releaae  from  hil  debta, 
the  community  wlU  loae  the  benefit  of  auch  aerricei  a>  he  might  render 
to  it  aa  a  trader.  For  the  very  fact  of  the  deblar'i  failure  prorea  that 
hitherto  he  haa  not  rendered  the  lenrice  to  the  community  that  ii  deair- 
able.  And  eiperience  prorea  that  the  beat  iervice  that  many  men  can 
render  U  ai  employea  of  otheri,  and  not  aa  traderi  on  their  own  account 
There  la  no  object,  therefore,  to  be  gained  by  granting  a  dlacharge  that 
may  be  diaapprored  by  a  number  of  credltora  in  order  that  the  debtor 
may  be  able  to  contract  new  obligations. 

X'- — The  full  amount  of  the  composition  should  be  paid  in  or  secured 
before  discharge;  or,  as  an  altematiTe,  the  business  of  the  bankrupt 
should  be  carried  on  under  a  controlling  inapection,  until  the  amount  is 
fully  realised. 

An  act  framed  in  accordance  with  theae  suggestions  would  be  found 
•ervicenble  alike  to  the  reasonable  orrditor  and  the  honest  debtor,  and 
would  be  free  from  the  drawbacks  and  disadrantages  which  led  to  the 
repeal  of  former  laws  on  the  subject. 


i 


MKROCOrv   nSOLUTION  TBT  OURT 

(ANS<  and  ISO  TEST  CHART  No.  2) 


1.0 


I.I 


1^ 

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M^mm 

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■  2.2 

att 

ISA 

■■■ 

IB 
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1*    H 

la 

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A 


/^PPUEDJWMGE 


lesj  Em  thim  strt*) 

Rochnltf.  Ntv  rorii        r 
<T16)  4*2  -  0100  -  Priwu 

(718)  laa-sMS  -fq. 


CHAPTER  XXXII. 


INSUBANGE  IN  ITS  BELATION  TO  BANKING. 

Extent  of  iNsrHANCK — Cost— "FiBc-I'nooF"  Strltctubes  Not  Exempt 

FllOM   DaNGPH T.IFF   INSI'HANCE. 

THE  intimate  connection  betwern  banking  and  insurance ,  may  br 
understood  when  it  is  considered  that  the  mercantile  loans  and 
discounts  of  a  bank  should  invariably  rest  on  mercantile  property 
or  movables ;  that  is  to  say,  on  goods  that  may  be  destroyed  by  fire,  which 
destruction  may  render  the  payment  of  the  loan  or  bills  difficult  or  impos- 
sible. Hence  it  is  of  the  first  consequence  to  a  banker  to  see  that  the  prop- 
erty to  which  he  looks  for  the  payment  of  his  loans  is  insured  in  sound  and 
reliable  companies.  Even  in  the  case  of  discounted  bills  for  wholesale 
houses,  it  is  perfectly  reasonable  for  the  banker  to  ask  of  his  customer^ 
are  the  makers  of  these  bills  insured?  If  their  stock  was  burned  could 
they  pay  these  notes?  Do  you,  in  fact,  for  your  own  protection,  see  to 
it  that  the  goods  transferred  from  your  warehouse  to  his  store  are  insured 
after  they  get  there?  It  is  to  be  presumed  that  they  are  insured  30 
long  as  they  remain  on  your  premises;  are  they  equally  safe  from  lost 
by  fire  when  transferred  to  his  ?  These  are  not  impertinent  questions,  for 
they  concern  the  very  essence  of  the  well-doing  of  both  parties.  A 
fire,  to  an  uninsured  trader,  may  mean  bankruptcy  to  him,  and  a  bad 
debt  to  his  creditors.  These  are  elementary  principles  which  are  ob- 
served, to  a  certain  extent,  by  the  majority  of  men  in  business.  But  it 
is  always  a  pertinent  inquiry  whether  property  is  insured  to  the  extent 
it  ought  to  be,  or  whether  the  person  concerned  is,  or  is  not,  one  of  the 
minority  who  take  the  risk  of  leaving  their  consumable  property  almost 
wholly  uncovered. 

Extent  op  Insurance. 

Let  us  consider  these  points  in  detail.  First,  to  what  extent  ought 
goods  to  be  insured?  To  this  there  may  be  more  than  one  answer,  for 
obviously  all  goods  in  transit  by  sea  or  lake  should  be  insured  for  their 
full  value  at  place  of  destination.  This  is,  indeed,  a  universal  rule.  The 
bills  of  exchange  bought  or  discounted  by  bankers,  to  which  are  attached 
bills  of  lading,  have  also  attached  to  them  policies  or  letters  of  insurance 
covering  the  whole  amount  of  the  bill.  And  a  purchaser  of  such  a  bill 
would  be  negligent  indeed  if  he  passed  such  a  bill  for  discount  with  no 
insurance  policy  attached.  But  goods  in  warehouse,  store  or  factory  are 
treated  on  diiferent  principles.  Seeing  that  insurance  costs  money,  the 
owner  of  a  stock  will  consider  what  the  probabilities  are  in  case  a  fire 
breaks  out,  and  whether  it  i«  necessary  to  have  it  insured  for  its  full 


INSURANCE  IN  ITS  RELATION  TO  BANKING.         3fi3 

value.  To  this  question  men  will  give  answer  according  to  their  tem- 
perament. The  cautious  man  will  insure  for  all  he  can  get  placed  on 
the  goods,  the  sanguine  and  overconfident  man  will  carry  as  much  of 
the  risk  as  he  dare  himself,  or  as  much  as  his  creditors  will  let  him.  But 
there  is  one  general  principle  applicable  to  cases  of  this  Idnd,  viz.,  that 
no  man  has  a  right  to  leave  ouimnrej  itn)  goodi  on  ahich  he  omet  money. 
Property  which  is  absolutely  his  own  and  on  which  no  claim  of  any 
creditor  is  based,  a  man  may  leave  uninsured,  if  he  so  pleases.  It  is  his 
own  affair,  and  no  one  has  the  right  to  call  him  to  account,  unless  it 
may  be  his  wife  or  children,  if  he  has  them;  for,  indeed,  he  has  no  more 
right  to  injure  them  than  he  has  his  creditors. 

With  regard  to  the  great  staples  of  merchandise  stored  in  ware- 
houses, such  as  grain,  flour,  raw  cotton,  wool,  etc.,  the  custom  is  uni- 
versal to  insure  up  to  the  full  value,  if  so  much  insurance  can  be  placed. 
And  this  is  reasonable.  For,  in  a  large  majority  of  cases,  such  stocks 
have  been  advanced  on  by  banks.  In  the  case  of  merchandise  such  as 
lumber,  piled  up  in  yards  and  wharves,  or  hides,  wool,  leather  and  other 
staple  commodities  in  warehouse,  difference  of  temperament  will  lead  to 
different  lines  of  action.  It  is  in  regard  to  these  that  rates  of  insur- 
ance are  apt  to  be  high,  varying  according  to  locality  and  the  com- 
bustible character  of  the  goods.  And  being  high,  men  are  constantly 
tempted  to  save  in  insursjce  as  much  as  they  can.  The  only  absolute 
rule  that  can  be  laid  down  is  the  one  just  enunciated,  vis.,  that  insurance 
should  be  placed  to  the  full  amount  of  any  debt  against  the  property, 
either  direct  or  indirect.  This  is  the  very  lowest  that  justice  demands. 
A  merchant  or  manufacturer,-  however,  is  bound  also,  in  considering  how 
mnch  his  insurance  should  be,  to  think  of  the  preservation  of  his  own 
standing,  and  the  continuity  of  his  business.  This  consideration  would 
lead  him,  even  in  eases  where  no  debt  rests  upon  the  goods,  to  insure 
for  such  an  amount  as  would  replace  them  in  case  of  fire;  and  even,  if 
possible,  to  such  an  amount  as  would  compensate  for  the  loss  of  time  and 
business  which  a  fire  would  occasion.  This  applies  particularly  to  manu- 
facturing establishments  and  mills.  In  all  cases  it  is  undoubtedly  bet- 
ter to  err  on  the  safe  side  and  to  consider  any  additional  amount  paid 
for  insurance  (if  it  is  reckoned  to  be  additional)  as  well  laid  out  in 
ensuring  that  quietude  of  mind  which  is  an  important  element  of  suc- 
cess in  business. 

The  Cost  of  Insurance. 
There  are,  however,  in  every  community,  persons  who  grudge  the 
cost  of  insurance,  considering  it  as  so  much  loti,  and  prefer  to  take  the 
risk  of  fire  rather  than  pay  it.  That  this  is  a  "penny-wise-and-pound- 
foolish"  policy  such  persons  often  find  out.  Bui  some  men  still  lean  to 
such  a  course;  and  especially  so  where  the  occupation  is  hazardous  and 
the  risk  great.  "The  premium  is  enormous,"  such  a  person  will  say; 
"my  business  cannot  afford  it."  But  in  so  saying  they  forget  that  iniur- 
ance,  whatever  the  rate  may  be,  is  as  legitimate  a  charge  on  business  as 


i 


S66 


BANKING    AND    COMMERCE. 


rent  and  taxes.  If  the  bufiness  will  not  bear  the  cost  of  insurance  as 
well  as  these,  there  is  something  wrong  with  the  management.  If  a 
man  has  been  selling  his  goods  at  a  certain  price,  without  taking  the  cost 
of  insurance  into  account,  he  has  been  selling  them  too  low. 

But,  in  reality,  the  high  rate  of  insurance  is  a  sort  of  signal  hung 
out  to  warn  men  of.  the  necessity  of  taking  unusual  precautions.  An 
unusually  high  rate  may  be  a  reminder  to  a  mill  owner  that  his  iiiill  is 
not  properly  built,  or  that  its  internal  arrangements  with  regard  to 
heating  or  power  are  not  well  contrived,  or  that  he  is  in  danger  from 
his  neighbors  and  needs  to  take  extra  precautions  on  that  score.  It 
will  warn  him  to  look  after  his  engine-room,  or  his  power-house,  or  tlie 
manner  in  which  his  goods  are  stored,  or  whether  he  has  proper  arrange- 
ments for  carrying  about  combustibles;  or  about  smoking,  or  the  use  of 
matches.  Still  more  will  the  high  rate  remind  him  of  the  necessity  af 
appliances  for  an  early  extinguishment  of  fire  should  one  break  out.  A 
high  rate,  that  is,  a  comparatively  high  rate,  will  always  arise  from  a 
consideration  of  these  sources  of  danger,  and  should  lead,  not  to  the 
refusal  to  insurt,  but  to  the  taking  of  all  possible  precautions,  and  keep- 
ing them  constantly  in  operation. 

A  man  who  neglects  to  insure  because  the  rate  is  high  would  be 
like  n  ship  owner  whose  business  is  to  sail  across  the  Atlantic,  not  build- 
ing his  ship  strong  enough  because  it  would  be  so  costly;  or  a  banker 
who  contented  himself  with  a  mere  fireproof  safe  because  a  stetl-clad 
burglar-proof  one  would  be  too  expensive.  The  real  truth  of  the  matter 
is  that  the  higher  the  rate  of  insurance  the  more  need  there  it  to  intute. 

In  speaking  of  a  high  rate,  it  is  not  the  writer's  intention  to  refer  to 
the  rates  current  over  a  whole  city  as  compared  with  other  cities.  These 
may  be  high  or  otherwise,  but  they  aifect  all  kinds  of  properties  and  all 
sorts  of  risks  in  the  same  proportion.  The  high  rate  on  which  the  fore- 
going reasoning  is  based  is  the  rate  which  is  high  in  proportion  to  build- 
ings or  stocks  in  other  lines  of  trade,  or  even  to  buildings  or  stocks  in 
the  same  trade  where  insufiicient  fire  appliances,  or  defects  of  conEbmc- 
tlon  or  proximity  to  other  sources  of  danger,  have  to  be  taken  into 
account. 

But  even  when  rates  are  high  over  a  whole  city  as  compared  with 
other  cities,  the  very  fact  is  a  danger-signal  to  all  who  carry  on  busi- 
ness in  it,  and  should  naturally  lead  to  extra  precaution  and  watchful- 
ness. The  same  remark  applies  to  certain  districts  in  business  centres 
where  risky  trades  are  carried  on,  and  where  a  fire  may  extend  over  the 
whole  area  of  the  district  before  it  can  be  put  out. 

"Fire-Proof"  Structures  Not  Exempt  from  Danger. 

It  is  sometimes  pleaded  by  persons  who  neglect  insurance  that  their 

premises  are  so  well-built  that  they  cannot  take  fire;  or  that  they  are  so 

isolated  that  no  fire  of  their  neighbors  can  reach  them,  or  that  they  take 

luch  precautions  that  no  fire  could  possibly  make  headway.     Experience, 


INSURANCE  I\  ITS  RELATION  TO  BANKING. 


2fi7 


however,  proves  how  little  reliance  can  be  placed  on  such  reasoning. 
Fireproof  buildi.igs  have  been  burnt  down.  Iron  will  not  burn,  but  it 
will  get  red  hot  and  set  (ire  to  wood  in  proximity.  Steel  will  warp  and 
twist  under  heat  and  drag  down  floors.  As  to  isolation,  a  great  fire  will 
cause  flames  to  shoot  out  to  a  distance  that  might  be  deemed  incredible 
by  those  who  have  not  had  experience. 

Considerations  of  extra  precaution  or  isolation,  or  of  a  superior  style 
of  building,  ra.iy  be  fairly  taken  into  account  by  one  who  is  considering 
Aon'  much  insurance  he  will  place.  But  they  should  never  prevail  to 
such  an  extent  as  to  lead  a  man  to  neglect  insurance  altogether.  And 
no  mailer  how  free  from  danger  a  man  may  consider  his  property  to  be, 
he  is  Iwund  to  insure  so  as  to  cover  any  indebtedness  against  it,  or 
against  its  contents.  The  first,  indeed,  will  be  certainly  taken  care  of 
by  a  mortgagee  if  there  is  any  encnmbrance  against  it.  The  latter 
indebtedness  will  be  to  a  merchant  or  a  banker,  who  may  not  be  as  exact- 
ing as  a  mortgagee,  but  whose  interests  the  debtor  is  as  much  bound 
to  protect. 

Thus  far  our  obsenations  hove  related  generally  to  stocks  of  goods, 
these  being  the  primary  consideration  for  a  banker  or  a  merchant.  Real 
property  i.s  no  proper  basis  for  a  banker's  loans,  and  he  should  have 
nothing  to  do  with  it,  unless  it  comes  into  his  hands  as  security  for  a 
standing  debt.  Then,  he  will,  of  course,  look  after  the  insurance  as  a 
matter  of  primary  necessity. 

But  a  banker,  though  he  does  not  directly  lend  money  upon  the 
buildings  owned  by  customers,  has  neve-»hele»s  a  strong  interest  in  their 
preservation;  for  it  is  a  banker's  i  st  that  his  customer's  capital 
should  not  be  impaired,  and  that  his  b  mess  should  go  on  without  inter- 
ruption. If  his  customer's  warehouse  be  destroyed,  it  is  a  pertinent 
question  to  inquire  whether  the  insurance  will  cover  the  loss,  not  only  on 
the  contents  of  the  building,  but  on  the  building  itself.  For  a  person 
may  have  a  substantial  capital,  say  in  ground  or  water  power,  and  yet, 
if  his  insurance  does  not  enable  him  to  rebuild,  he  would  find  it  difficult  to 
raise  money  to  do  it.  In  that  case,  he  may  have  to  curtail  his  business  to 
an  unprofitable  extent,  or  to  wind  it  up  altogether.  These  are  the  risks  of 
the  man  who  does  not  insure,  or  who  insures  for  an  amount  that  Is 
insufficient  for  contingencies. 

There  ore,  indeed,  certain  classes  of  property  that  are  indestructible 
by  fire.  When  a  saw  miller  or  timber  merchant  has  got  his  logs  into 
the  water,  there  is  no  need  to  insure  them,  so  long  as  they  are  floating 
down  the  stream  or  confined  in  a  boom  or  coie.  They  are  so  safe  there 
that  even  an  incendiary  could  not  set  them  on  fire.  But  the  moment  a  log 
is  transferred  to  the  mill  and  sawn  into  lumber  it  becomes  combustible. 
Similarly,  stocks  of  fish,  so  long  as  they  are  in  the  boat,  are  practically 
incombustible.  But  the  moment  they  are  placed  in  a  "cannery"  or  fiah 
warehouse  they  call  for  insurance.  It  is,  however,  on  such  debatable 
ground,  as  it  may  he  called,  that  negligence  or  a  disposiKon  to  t«k» 


^:! 


■m 


HB,,in 


^6S 


BANKING   AND   COMMERCE. 


undue  risks  may  prevail,  and  a  disnstrotts  fire  ex|)osc  the  folly  of  al] 
parties  coneernrd. 

Though  it  is  not  strictly  within  the  province  of  a  banker  to  eonsidcr 
other  kinds  of  risk,  yet,  as  loans  are  sometimes  made  (as  an  exception) 
to  bodies  other  than  mercantile,  it  may  be  noted  in  conclusion  that  all  the 
foregoing  principles  apply,  with  full  force,  to  thtm.  No  body  of  col- 
lege governors,  or  directors  of  benevolent  institutions,  hospitals,  asylums, 
or  officers  of  churches,  has  a  right  to  all  w  the  property  of  the  institution 
to  be  jeopardized  by  neglect  of  ingurnpce.  The  obligation  is  of  neces- 
sity even  stronger  than  in  the  case  of  a  privatt  individual.  He  may,  if 
he  will,  jeopardize  his  own  property,  within  certain  limitations,  as  before 
stated.  But  boards  of  governors  are  trustees  and  guardians  of  the  prop- 
erty uf  oMiers.  Such  properly  has  been  crt-ated  by  public  funds  or  bene- 
factions; trustees  are  bound,  therefore,  by  every  obligation  of  honor,  to 
see  that  Mic  property  entrusted  to  them  is  not  only  preserved  from  the 
danger  of  fire  by  ordinary  precautions,  but  from  loss,  should  fire  unfor- 
tunately break  out.  With  regard  to  institutions,  such  as  colleges,  where 
young  people  are  boarded  from  time  to  time,  it  is  obviously  the  duty  of  the 
nuthorities  to  insure,  not  only  the  building  and  furniture,  but  also  the 
wearing  apparel  and  other  private  property  of  the  students  and  scholars. 
It  is  unreasonable  that  parents  should  take  the  risk  of  this,  and  be 
exposed  to  the  charges  incident  to  the  refitting  of  pupils,  whose  clothing 
and  books  have  been  destroyed  by  fire.  It  is  also  incumbent  upon  college 
authorities,  where  pupils  are  boarded,  to  see,  not  only  that  their  prem- 
ises are  insured  to  a  sufficient  amount,  but  also  that  proper  precautions 
are  taken  against  the  danger  from  fire  itscK.  ?r»per  means  of  exit  and 
preventives  against  fire  spreading  are  their  botmden  duty  to  provide.  The 
necessity  of  all  proper  precautions  being  taken  has  been  demonstrated 
of  late  (19O8)  in  a  marked  degree  by  the  fires  which  have  taken  place — 
the  one  at  the  great  public  school  of  Eton,  England,  the  other  at  Ridley 
College,  Optario,  Canada. 

LiPB  Insurance, 

Of  this  style  of  insurance,  all  that  needs  to  be  said  is  that  a  banker, 
if  he  advances  at  all,  will  never  advance  more  than  the  surrender  value 
of  a  policy;  and  if  he  t&kes  a  policy  as  security,  will  never  consider  the 
security  to  be  more  than  such  surrendi'r  value  amounts  to. 


iUAPTKH  XXXl/L 

THE  NATIONAL  BANKS  OF  THE    UNITED    STATES,    AND 
AMERICAN  BANKING, 

Absence  of  Branches- -Lack  op  N'oip  Rrukmptidns — I,aw  of  Fr.«n 
Reserves — Ejcamixationb— Stockmulukhs'  Mertiniis  in  Canada 
and  the  United  States— Officers  op  Amfrican  Banks— Certifi- 
cation or-  ClIECKb. 

THE  Notional  Bank  Act  of  the  United  States  provides  a  safe  and 
uniform  currency  for  the  whole  country,  as  has  been  shown.     But 
thot  currency  is  subject  to  one  considerable  drawback,  as  being  « 
fixed  quantity,  and  being  incapable  of  corresponding  with  the  movements 
of  commerce.     It  wants  what  is  known  as  elasticity. 

All  experience  shows  that  agricultural  communities  are  subject  to  great 
variations  in  the  amount  of  currency  required  at  different  seasons.  If 
then  the  volume  of  currency  cannot  be  enlarged  as  that  of  Canada  can, 
during  the  harvest  season,  and  that  of  Scotland  also  (on  condition  of 
gold  being  held  to  cover  it),  there  is  apt  to  arise  a  period  of  monetary 
pressure  whenever  the  crops  require  to  be  moved  to  market.  The  cir- 
culation required  at  the  har^-est  season  can  only  be  obtained  by  drawing 
on  the  centres  where  it  has  accumulated  during  the  interval.  But  in  these 
centres  such  funds  are  invariably  loaned  or  employed  in  temporary  dis- 
counting. All  such  loRns  must  be  called  in  when  the  han-est  demand  seti 
in,  causing  a  necessity  for  other  arrangements,  or  a  stringency  more  or 
less  developed,  and  a  rise  in  the  rate  for  money  to  abnormal  figures.  In- 
deed, such  a  scarcity  of  currency  has  been  known  to  prevail  in  the  United 
States  for  a  period  of  years,  aggravating  commercial  depression  and 
producing  widespread  disaster.  The  scarcity  of  currency  in  jome  agri- 
cultural districts  at  such  times  has  resulted  -n  practically  putting  them 
back  to  the  primitive  condition  of  barter,'" 

Absence  of  Branches, 

Apart  from  the  system  of  currency,  with  its  excellencies  and  defects, 

the  American  banking  system  has  several  points  of  difference  both  from 

banking  in  Canada,  and  from  the  practice  of  England  and  Scotland. 

The  most  striking  of  these  differences  is  that  every  banking  office  is  a 

72  It  la  on  record  in  reply  to  enquiries  Inatltuted  by  the  Chamber  of  Com- 
merce of  New  York,  about  the  year  1894,  that  over  a  larie  part  of  Western 
Virginia,  at  tliat  time,  money  had  90  completely  disappeared  that  a  person  In 
possession  of  a  ISO  bill,  beiny  desirous  of  changing  it.  drove  more  than  forty 
miles  round  about  his  village  without  being  able  to  find  as  much  monev  as 
nrty  ilollars  anywhere.  At  this  very  time,  across  the  border  In  Canada,  simi- 
lar districts  were  abundantly  supplied   with  currency. 


m 


«70 


BANKING    AND    COMMERCE. 


leparnte  corporiition,  with  iti  own  capital,  stocltliolderi,  and  director!. 
Branches  lire  unlinown.  The  system  of  branches  never  prevailed  in  the 
United  States  to  any  extent,  and  they  have  now  entirely  disappeared. 
The  law  allows  joint-stock  banks  with  as  smoll  a  capital  as  $23,000,  and 
though  it  may  seem  an  anomaly  to  conilitutc  n  complete  corporation,  with 
the  machinery  of  n  separate  bank  for  such  a  miniature  concern,  neverthe- 
less numbers  of  such  banks  have  been  called  into  existence,  and  have  ren- 
dered tlie  s:ime  kind  of  service  to  the  small  towns  of  the  United  State* 
as  is  done  by  the  branches  of  banks  in  Canada, 

But  the  service  is  not  so  efficient.  For  the  branches  of  banks  in 
Canada  are  managed  by  men  who  have  been  trained  in  banking  principles 
and  practices  in  the  large  institutions  of  the  country.  They  are,  for  that 
reason,  well  qualified  to  judge  of  the  transactions  that  come  before  them, 
and  to  discriminate  against  undesirable  and  insecure  advances;  in  ad- 
dition to  which  they  have  the  advantage  of  constant  advice  from  head- 
quarters. They  are  also  free  from  local  prejudices  and  predilections, 
ond  are  likely  to  judge  of  transactions  on  their  merits.  This,  however, 
is  not  the  sole  advantage.  A  branch  of  a  large  institution  carries  with 
it  the  strength  and  safety  of  the  parent  corporation.  It  is  therefore  a 
safe  place  for  deposits,  in  addition  to  which  the  whole  resources  of  the 
corporation  are  available  in  case  some  enterprise  in  the  locality  should 
require  larger  advances  than  could  be  furnished  by  a  local  institution. 
Of  the  merits  of  the  branch  system  in  general,  mention  will  be  made  more 
at  large  in  the  chapter  on  Canadian  banking.  The  above,  however,  wilt 
sufhee  to  suggest  that  the  system  of  a  separate  corporation  for  each  bank 
is  not  so  advantageous  for  small  communities. 

Lack  of  Noti  Ridiuptions. 

Another  peculiarity  of  the  .\merican  system  is  that  there  >  no  re- 
demption of  notes.  This  has  come  about  most  naturally  froi .  the  cir- 
eumstances  under  which  they  are  issued,  for  all  are  secured  by  deposit 
of  Government  bonds  of  the  same  quality,  all  therefore  are  nearly  equal 
in  credit  and  value.  Hence  they  are  all  Ireoted  by  the  banks  as  money 
of  a  common  stock.  Many  of  the  banks  have  issued  all  they  have  the 
power  to  issue.  Redemption  therefore  answers  no  particular  object  and 
is  never  carried  out. 

Law  or  Fixko  Resmves— Examinations. 

But  the  two  most  striking  features  of  American  ban'  ing,  next  to  tt« 
secured  but  inelastic  circulation,  are  the  requirements  b  law  of  a  fixed 
minimum  of  reserve  of  cash  or  its  equivalent,  to  be  kept  on  hand,  and 
next  the  system  of  bank  examination  by  Government  officials.  With  re- 
gard to  the  former  it  must  be  said  that  while  it  has  a  great  attraction  for 
those  whose  knowledge  of  banking  is  only  theoretical,  its  benefits  are  il- 
lusory in  practice.  The  system  indeed  has  two  fundamental  drawback!. 
It  is  calculated  to  aggravate  banking  difficulties  in  time  of  cmbarrasa- 


AMERICAN    BANKING. 


mrnt.  and  when  tlirpi-  is  ii  uiircity  of  nioniy,  Iht  very  ncceuily  of  the 
cue  leadi  to  ita  |ipovislon»  king  violuttd.  In  all  lound  banking  the 
keiping  of  ndrc|iinl<-  nurv.-s  of  ovailnblc  fundi  ii  dwmed  a  matter  of 
vital  importance,  it  In ing  of  the  (s»tncc  of  a  banker'a  buiineii  to  be  able 
to  meit,  at  once,  under  all  circunistuncM,  every  demand  made  upon  him. 
To  every  prudent  banker,  therefore,  the  amount  of  caih  retcrvei  he  hu 
01.  hand  ia  a  matter  of  daily  allenlion;  and  the  watching  of  iti  ebb  and 
(low,  and  the  repleniahing  of  Ins  resources  when  the  demands  of  busineu 
cause  them  to  run  down,  a  never-ceasing  occupation.  But  a  small  ron- 
lideration  will  show  that  it  is  a  matter  of  imperative  necessity,  not  only 
that  he  shall  have  an  ample  stock  of  lawful  money  by  him,  but  that  he 
shall  have  command  of  the  rvhole  of  that  ttort  at  all  timet.  If,  out  of 
this  store  of  legol-lendep  money,  there  is  a  certain  amount  ho  cannot 
touch,  it  is  evident  that  for  purposes  of  meeting  demands  upon  him  thil 
particular  amount  might  as  well  be  non-existent.  It  is  as  if  on  some  par- 
ticular day  he  had  locked  up  a  large  amount  of  reserve  money  in  hli 
safe  and  handed  the  key  to  the  Government.  No  matter  how  much  money 
he  might  have  there,  he  might  be  compelled  to  stop  payment  and  be 
ruined,  because  he  could  not  meet  demands  out  of  the  remainder. 

This  i«  exactly  the  position  in  which  the  American  system  places  every 
bank.  It  ordains  that  a  certain  percentage  of  the  liabilities  of  the  bank 
must  be  kept  in  cash,  or  in  the  equivalent  of  cash.  This  legal  percentage 
is  undoubtedly  a  reasonable  amount;  such,  in  fact,  as  prudent  bankers 
would  seek  to  have  on  hand  in  the  ordinary  course  of  business.  But  it  ia 
evident  that,  when  the  law  orders  a  banker  to  keep  this  amount  of  money 
by  him,  that  amount  is  withdrawn  from  his  use  for  meeting  demandi 
upon  him.  No  matter  what  demands  are  made  upon  'im  in  the  course  of 
a  day's  business,  he  cannot,  if  he  obeys  the  law,  touch  that  portion  of  his 
cash  reserves  to  meet  them.  It  is  as  if,  in  military  matters,  the  law  or- 
dained that  every  general  must  keep  twenty  per  cent,  of  his  army  in  re- 
fcrve,  and  forbade  him  to  use  that  part  of  his  force  when  a  battle  is 
going  on. 

But  no  General,  if  the  exigencies  of  an  engagement  were  imminent, 
could  help  bringing  his  reserves  into  play  to  prevent  defeat.  Self-preser- 
vation is  the  first  law  of  nature.  No  statute  law  can  override  it.  The 
position  of  a  banker  under  a  law  of  this  description  is  of  a  similar  char- 
acter. In  the  demands  of  his  customers  he  has  a  daily  battle  with  cir- 
cumstances. These  demands  must  be  met  with  money  on  the  spot,  or  he 
is  defeated  and  disgraced  as  a  banker. 

Thus,  then  it  has  come  to  pass,  under  the  pressure  of  circumstances, 
in  times  of  monetary  scarcity,  that  American  bankers  have  found  them- 
selves face  to  face  with  the  problem,  shall  iI.-t*  use  their  monetary  re- 
serve to  fulfill  the  contracts  made  with  their  .  osiomers,  or  shall  they 
comply  strictly  with  the  law  and  refuse  to  pay  their  customers  the  money 
demanded.  It  is  evident  th.it  when  in  this  position  the  banker  is  in  the 
presence  of  two  conflicting  laws.     On  the  one  hand  is  the  law  whicb 


" 


,     f 


i^til 


BANKINO    AND    COMMERCE. 


obligei  him  to  fulfill  the  contract  made  with  ciutomerf,  on  the  other  ii  tht 
ttntutory  rcquirt-QH-nt  thnf  forbidi  him  to  touch  hi*  atore  of  money  when 
it  haa  run  down  to  a  ccrt.tin  lum.  Placed  thua  between  two  contradictory 
requiremcnta,  it  doea  not  need  much  penetration  to  aee  what  a  banker'i 
chuicr  will  be.  The  law  of  aelf-pr nervation,  combined  with  the  fondm- 
mental  law  of  the  inviolnbility  of  contracti,  will  lead  him  to  paj  the  de- 
mand! of  the  cuftomeri,  though  by  lo  doing  he  violstea  tlie  proriiiona  of 
the  atatute  law  of  banking. 

This  forecait  of  what  would  be  likely  to  he  done  has  been  demon- 
•trated  to  be  correct  by  experience.  Again  and  again  have  American 
banks  kept  on  fulfilling  their  contract*  with  depositors,  although  the 
store  of  money  required  by  law  has  gone  below  the  limit.  In  such  a  pub- 
lie  manner  has  this  been  done  that  it  has  been  regulirly  published  In 
financial  journals.  When  these  papers  are  publishing  the  condition,  aay, 
of  t'  -^  banka  of  New  York  city,  they  are  in  the  habit  of  giving  the  fig- 
ures of  the  monetary  reaerre  as  being  up  to  legnl  requlremtiits,  or  abott 
them,  or  belonr  them.  Now,  in  the  latter  case  they  publish  the  fad  th&t 
the  banka  have  violated  the  law.  This  has  repeatedly  been  done  during 
the  last  thirty  years,  yet  neither  the  Government,  nor  the  public,  nor 
banka  in  dealing  with  one  another,  have  taken  the  least  notice  of  it,  ex- 
cept as  an  indication  that  money  is  scarce.  It  is  for  these  reasons  that 
Canadian  bankers  have  Invariably  resisted  any  attempt  to  incorp-  ate 
inch  a  provision  in  the  banking  law  of  the  Dominion,  although,  under 
pressure  from  doctrinaires  and  theorists,  the  Government  has  sometimes 
endeavored  to  effect  it  when  the  renewal  of  charters  was  under  coniidera- 
tion. 

Closely  allied  with  the  requirement  of  a  minimum  money  reserve,  It 
tnat  of  a  system  of  Bank  Examination.  This  system  probably  had  for 
its  foundation  not  so  much  the  determination  whether  a  bank's  businesa 
was  being  conducted  safely,  as  whether  it  was  complying  with  the  law  in 
the  matter  of  reserves.  This  necessitates  on  inspection  somewhat  of  the 
tame  character  as  is  given  to  the  branches  of  banks  in  Canada,  via.,  a 
verification  of  the  liabilities  and  assets  of  the  office,  not  merely  by  a 
balancing  of  books,  but  by  an  actual  counting  of  money  and  examination 
of  bills  and  documents.  The  examination  of  an  American  bank,  however, 
especially  in  large  cities.  Is  now  carried  beyond  this,  and  embraces  patt- 
ing judgment  upon  the  loans  and  discounts  of  the  office.  And  when  the 
examiner  is  a  man  of  capacity,  and  has  learned  by  practice  how  to  bring 
his  experience  to  bear  upon  current  transactions,  his  visit  is  often  found 
to  be  highly  beneficial.  But  experience  has  proved  that  the  examination 
it  In  some  cases  of  a  perfunctory  nature,  doing  neither  good  nor  harm. 
There  have  l«en  instances  in  which,  only  a  short  time  after  an  examiner's 
verification,  a  bank  hat  been  found  to  be  utterly  bankrupt.  Further, 
when  the  examiner  wat  a  strong-headed,  opinionated  man,  whose  knowl- 
edge of  busineti  wos  in  inverse  proportion  to  his  conceit,  his  visit  would 


AMERICAN    HANKING. 


br  productlvf  of  lianu.     For  he  would  And  fault  with  tniiuclloni  thit 
were  lound,  and  pan  by  otIiTi  that  were  dangeraui. 

The  eiaminatloni  of  j.  Ii  ,iiki  in  the  large  cltiei,  in  New  York  eipec- 
Inll.v,  are  well  and  carefully  done,  aa  a  rule.  Though  the  poit  ii  a  politi- 
cal one.  and  therefore  llnble  lo  change!,  the  Government,  ai  a  rule,  take* 
core  that  men  of  intelligence  and  experience  are  appointed.  An  Intelli- 
gtnt  examiner  will  give  the  banker  the  benelit  of  h'l  judgment  ai  to  the 
•oundnrii  of  hii  diacoutiti,  and  lometlmei  a  hint  that  the  paper  of  iuch 
mid  lucli  a  Ikiiisi  wn»  tii  lu-  fciiind  in  iillicr  bnlili».  tliiis  |iiitting  n  |>ri  sidint 
or  e/nliiiT  on  his  gimrd.  The  is.iiiiiii  r'»  duty  alio  miliraii's  llu  nupdiie 
loans  and  billi  of  the  office,  with  the  ircuritiei  held  therefor !  and  it  it 
hit  buaineii  to  lec  that  proper  proviiion  ii  made  for  such  M  are  doubtful, 
and  that  «uch  as  arc  bad  are  written  off.  Seeuritio  :n  the  shape  of 
mortgages,  properties,  i.id  claims,  also  bonds,  slocks  and  guaranteei  arc 
examined  with  a  view  to  nsci-rtain  whether  they  stand  ol  a  proper  a.  .nt 
in  the  bank's  books.  And  when  the  examination  is  completed,  a  report  is 
made  to  the  Ccmptroller  of  the  Currency  in  Washington,  who  passes  the 
whole  under  review,  and  sometimes  corres|>onds  with  the  banks  on  points 
that  seem  to  require  it. 

This  examination  of  the  American  banks  is  another  of  the  polr.ti 
sometimes  out  forward  by  theorists  as  desirable  to  be  applied  to  Canada. 
But  this  is  in  evident  ignorance  of  the  d'  ice  in  circumstances.     To 

examine  properly  a  single  large  olSce  of  a  Canadian  bank,  doinj  a  large 
business,  Is  a  laborious  matter,  occupying  the  time  of  several  officials  for 
three  or  four  weeks,  and  entailing  in  addition  n  large  amount  of  supple- 
mental office  work  to  bring  all  the  threads  to  a  point.  But  when  a  bank 
has  brancher,  as  nearly  every  Canadian  bank  has,  the  examination  of  any 
one  of  its  offices  is  not  on  examination  of  the  bank,  f^T  the  bank  exists 
with  all  its  powers  of  creati  '  liabilities  and  investing  in  assets,  in  ten, 
twenty,  or  even  a  hundred  placn,  at  once ;  all  of  whic*.  must  be  examined 
on  the  very  samo  day,  if  the  truth  of  its  published  statement  is  to  be  veri- 
fied. For  example,  the  first  column  in  the  monthly  statement  made  by 
Canadian  banks  to  the  Government  gives  the  amount  of  thtir  note  cir- 
culation. This  amount  is  ascertained  by  deducting  the  total  of  its  own 
notes  held  by  a  bank  on  a  given  day  from  the  total  that  has  been  signed 
and  entered  in  its  books.  But  those  notes  are  held  in  forty,  fifty  or  more 
separate  offices,  and  tl  i  amount  varies  every  day.  They  must  be  counted 
simultaneously  therefo.j  at  the  close  of  the  same  day,  in  every  one  of  the 
'Offices.  To  do  this  so  as  to  make  a  complete  check  wou' '  require  the  em- 
ployment of  a  hundred  men  at  least.  But  this  would  oe  only  the  begin- 
ning. The  whole  of  the  rest  of  the  cash  would  require  to  be  counted  on 
the  same  day,  and  on  the  same  day  also  the  vast  volume  of  bills  dis- 
counted wculd  require  to  be  examined  at  every  one  of  ti;-  offices.  The 
deposit  ledger  must  alio  be  simultaneously  balanced,  the  general  ledger 
•Iso,  the  bills  for  collection  verified,  the  accounts  with  other  bonks  >t 
home  and  abroad  checked  over,  and  an  enormous  mass  of  verifying  cor- 


m 


tu  BANKING    AND    COMMERCE. 

rnpondrncc  mlirrd  upon,  the  rciulli  of  which  would  rrqulre  to  bo  w«ited 
fur  Uforr  the  .-i.mln.tlon  could  b.  Mid  to  be  complete.  To  »"7  "* 
all  Ihii  rdirlcntlv  In  the  cn.e  of  nny  one  of  the  large  linnka  two  hundred 
men  at  leait  would  be  required.  Yet  the  examination  even  then  would 
only  have  embraced  one  bank.  Now,  conildering  the  number  of  b«nk» 
In  the  Dominion,  and  the  number  of  their  branchel,  Mme  of  them  In  the 
United  Slatrt,  the  Welt  Indiei  and  Great  Britain,  It  U  not  too  much  to 
■ar  thai  to  do  the  work  effectually  would  require  the  creation  of  an 
eii'onnou.  Oovrmmenl  department  with  at  le.it  a  thouMnd  trained  of- 
fleer..  To  do  <he  work  in  any  other  way  would  be  deluilve  and  mU- 
ehlevou..  Th.  above  .tatement  .hould  demon.trate  the  Impoulbillty  of 
the  project. 

Stocxiiolkihi  M«tinoi  in  Canada  anu  tiii  United  Statu. 

Another  feature  of  American  banking  and  one  In  which  it  differ,  in 
a  marked  degree  from  that  of  Great  Britain  and  Canada  i.,  that  lU  t«in»- 
Ing  corporation.,  apart  from  the  return,  they  make  to  the  Goveriment, 
scarcelv  e>er  come  b.  .-c  the  general  public.  The  annual  meeting  of 
the  .toikholder.  of  one  of  the  larger  bank.  In  Great  Britain  or  Canada 
I.  an  event  of  intere.t  to  the  whole  community.  Reporter,  are  generally 
preaent,  remark,  and  comment,  are  made  by  the  prMldent,  and  often  by 
the  chief  executive  officer,  in  which  there  i.  .ometime.  a  review  not  only 
of  the  buaine..  of  the  bank,  but  of  the  financial  and  commercial  po.ltloD 
of  the  country.  ThI.  i.  specially  the  ca.e  in  Canada.  QuMtlon.  are 
asked  bv  .toekholder.  a.  to  point.  In  the  annual  .tatement,  or  a.  to  profit, 
or  lo..e'.,  and  it  i.  common  both  in  Great  Britain  and  Canada  for  stock- 
holder, to  make  remark,  and  critlcl.m..  And  when  legLlatlon  1.  being 
brought  forward  on  the  .ubjeet,  either  in  the  Provincial  or  Dominion 
legislatures,  the  opinions  jf  banker,  are  generally  a.ked  for  and  great 
weight  attached  to  their  answer.. 

But  a.  a  rule  nothing  of  the  kind  1.  known  in  the  United  State..  Un- 
1,,.  .omelhing  extraordinary  1.  taking  place,  the  newapaper.  take  no 
notice  of  the  annual  meeting,  of  bank.,  and  a.  to  admitting  reporter., 
they  would  as  soon  be  allowed  to  attend  the  weekly  meetings  of  the  board 
of  directors.  The  banks  are  looked  upon  almoit  a.  private  partnership., 
.o  far  a.  their  individual  action  Is  concerned!  the  only  notice  taken  of 
them  is  In  their  associated  capacity,  when  their  pubUc  statement,  are 
noted  and  commented  upon  purely  In  their  bearing  m  the  money  market 
As  to  their  action  a.  bearing  on  trade  or  commerce  U  Is  rarely  thought  of. 
Nor  is  It  as  bearing  upon  legislation. 

The  Annual  Meetings  of  the  Bankers'  Associations,  both  of  the  sepa- 
riite  Stales,  and  of  the  country  as  i  whole,  arc  the  only  occasions  on  which 
the  larger  questions  are  di.eu.sed  which  are  common  to  all  banks  and 
which  relate  to  banking  as  a  profcion.  There,  however,  they  are  dl«- 
cu.sed  with  marked  abUity.    The  pnrely  local  character  even  of  the  larg- 


AMKRH'AX    BAXKIXCl. 


■i7: 


fit  Atiiiriiin  bniiki  li  dmililliat  llir  rin<nn  lor  nil  llili.  wlili'li.  il  ,li,  iiM 
bt  hornc  In  mind,  hM  not  orisin  from  Ii giilnlion,  but  hm  bun  tlm|ply  • 
growth  of  cuktom. 


11 
II J 

ililM 


Or»-H  ERi  OF  Amehican  Rankd. 

Thirr  nrv  »  rlniii  pnrticiilnrN  in  ul<  ,  (lit-  internal  rrOHon,^  nf  Amrrl- 
cm  linnks  in  clilf.  nut  from  that  pn\.iit>n(i  in  Urtnt  Dritnin  ami  (aimda. 
Tho  tiio^t  iniportniit  of  tliisr  i.  in  Ilir  position  ntciiplrd  liy  thr  prmiiient. 
The  prr<>iilrnt  of  an  Amtrirnn  Iwink  '.n.  nn  n  iiinltrr  of  foiirnr.  a  nmnlH-r 
of  tlir  lionril  of  dinrtorx  and  unl.jc.l  Ijki  tin  tv%\  to  an  annual  diclion. 
And  hr  in.  liy  the  v.  ry  tiirc  of  liis  offir* .  tli,-  t-lialnnnn  of  tlir  Itnard. 
nnt  in  addition  to  this.  lie,  in  ninny  rases,  is  tlir  ninnaftrr  and  fhi.f  v\* 
rctitivi-  offictT  of  tin-  corporation,  nnil  as  such  givra  daily  ntt«  ndani-. .  r*'- 
fiivrs  nstonirrs.  nrranftt«  loans,  disrounls  bills.  op»  iih  or  i-lo-i.  s  .ic- 
counts,  nnd  ap)>ointH  nnd  siiprrvisrs  the  staff  of  the  Kink.  lie  h.M  liad 
iilninat  invnrinlily  a  lrftinin«  in  the  business  of  bnnkinfr  frnm  tlir  outsit. 
He  is  thus  abh'  to  prrforni  with  iiitill  nee  nil  the  functions  of  the 
grncrnl  inana^-r  of  an  F.nfiHsli  or  ('nnr  i  bank.  In  the  smaller  banki 
of  the  I'nited  States,  the  duties  of  evei.  .i  Canadian  brnnrh  manager  ap- 
ptrtnin  to  him.  There  arc  undotibtrdly  some  advantages  in  this  system, 
for  the  president  King  the  chairman  of  the  board  of  directors  is  able 
with  perfect  l.nowledgc  and  with  the  weight  of  nuthorit-  »o  carry  out 
their  policy  in  tlie  banks  daily  administration. 

This  ensures  that  there  sliill  \w  no  conflict  between  the  ' '  f  executive 
officer  and  the  board,  nnd  that,  in  case  of  difference  of  opinion,  the  vicwi 
of  directors  »lmll  prevail.  It  carries  also  the  great  advantage  that  in  the 
board  itself  there  shall  lie  one  who  is  perfectly  conversant  with  mnttert 
from  a  banking  point  of  view  :  a  professionnl  banker,  in  fact,  whose  in- 
formation is  varied,  and  hia  judgment  sharpened  by  daily  contact  with 
customers  and  the  )iubIio.  ReaNons  like  these  have  prevailed  when  on  sev- 
eral occasions  the  general  manager  of  n  Cnnadinn  bank  has  been  elected 
to  the  oflicc  of  president,  continuing  ncvertlicless  to  exercise  the  same 
functions  as  before. 

There  arc,  however,  disadvantages  in  the  system.  It  is  undoubtedly 
desirable  tlint  the  chairman  of  the  board  of  directors  nnd  the  principal 
person  amongst  them,  should  be  a  man  of  wealth  and  importance  in  th« 
community,  apart  from  his  connection  with  the  bank.  This  il  is  scarcely 
likely  that  any  officer  of  a  bank  could  be.  Moreover,  it  is  certainly  unde- 
sirable that  the  principal  executive  officer  of  a  bank  should  be  subject  to 
an  annual  election,  the  continuity  of  the  same  person  In  such  an  officr 
being  a  matter  of  imporUnce.  The  carrying  out  of  this  system  of  mak- 
ing the  president  the  chief  executive  officer  involves  also  the  making  the 
office  of  cashier  a  position  of  secondary  importance.  He  therefore  hai 
duties  which  though  important  are  subordinate.     His  poiition  in  effect 


■  m.: 


276 


BANKING    AND    COMMERCE. 


is  analogous  to  that  of  aHisbint  manager  in  an  English  or  Canadian 
bank." 

Certification  of  Chicks. 

Another  peculiarity  of  American  banking,  especially  in  the  large 
cities,  is  the  function  exercised  by  the  paying  teller  of  certifying  checki 
as  "good."  The  exercise  of  this  function  by  an  officer  who  does  not  keep 
the  accounts  of  customers,  and  does  not  charge  such  checks  to  account 
when  certifying  them,  is  somewhat  of  an  anomaly,  and  seems  to  open  the 
way  to  constant  mistaken  For  in  a  bank  with  a  large  number  of  acconnti 
it  seems  impossible  for  a  teller  to  recollect  with  sufficient  accuracy  the 
position  of  every  account  to  make  it  safe  for  him  to  certify  that  checks 
are  good.  Experience,  however,  seems  to  justify  the  practice,  and  it  li 
well  known  that  the  tellers  of  many  English  banks  pay  checks  across 
t^e  counter  without  any  certification  at  all.  Some  banks  in  the  North  of 
England  have  adopted  the  practice  of  certification.  But  in  their  case 
the  certifying  officer  is  the  person  who  keeps  t!.^  account  in  the  ledger, 
which  is  the  more  reasonable  and  safe  practice.  This  is  the  case  in 
Canada,  and  it  is  carried  out  with  accuracy  and  precision  there  by  charg- 
ing the  account  of  a  customer  with  every  check  that  is  certified. 

Altogether  the  system  of  banking  carried  out  in  the  States  is  evi- 
dently adapted  to  the  requirements  of  the  country.  The  division  into 
national  banks  and  state  banks  arises  naturally  from  the  circumstance! 
under  which  the  states  of  the  Union  came  to  be  at  once  separate  and 
united.  Both  classes  of  banks  are  precisely  the  same  in  their  internal 
economy.  The  want  of  elasticity,  however,  is  a  great  drawback  to  the 
national  currency,  as  has  been  observed,  and  efforts  have  been  made  at 
various  limes  to  cure  this  defect,  which  could  be  accomplished  by  the 
adoption  of  a  system  analogous  to  that  of  Canada.  But  the  jealousy  of 
banking  corporations  entertained  by  large  multitudes  of  the  people,  es- 
peciallv  of  the  Western  States,  has  hitherto  prevented  any  legislation  In 
that  direction;  in  fact,  instead  of  turning  their  attention  to  such  a  prac- 
tical matter  as  this,  multitudes  of  the  people  have  been  misled  into  the 
advocacv  of  such  a  will-o'-the-wisp  as  the  establishment  of  tilver  on  an 
utterly  "impracticable  and  dishonest  basis.  This  dangerous  delusion  has 
only  been  dispelled  by  the  setting  in,  of  late  years,  of  a  tide  of  prosperity 
over  every  part  of  the  country  and  of  every  interest  in  it. 

The  interference  by  government  in  such  a  delicate  matter  of  bank  ad- 
ministration as  the  monetary  reserve,  and  also  the  system  of  bank  exami- 
nations under  the  supervision  of  a  government  bureau,  are  instances  of 

li  In  the  early  days  of  Canadian  banking  and  there  U  a  aiirvlval  of  thla 
■yatem  yet  tn  nome  quarters,  the  chief  executive  officer  of  the  bank,  even  when 
It  had  many  branches,  was  called  "cashier,"  Instead  ef  manager  or  »eneral 
inanaKer.  But  his  functlMis  were  the  same  sa  those  of  the  president  of  an 
Amerlonn  hank,  and  not  of  Ita  cashier.  The  title  of  "cashier"  Is  also  used  of 
the  chief  executive  officer  In  some  Scotch  banks,  as  Is  the  case  also  In  the  Bank 
of  Ensland.  It  Is  well  known  also  that  the  officer*  who  are  called  "tellers"  In 
■cotland,    are   called   "cashiers"   In  Bntland. 


AMKRICAN   BANKING.  ,77 

»h.t  ii  a  remarkable  feature  in  adminiatratian  In  the  United  SUtea  Tiz 
the  ejtent  to  which  the  powen  of  government  are  atretihed.     Snch  »»" 
ernniental  mlerferenee  ia  entirely  unknown  in  the  hanka  of  England  and 
Scotland,  and  it  would  never  be  tolerated  If  attempted.    The  lame  remark 
may  also  be  applied  to  Canada. 

One  Unal  word  may  be  said  as  to  the  manner  in  which  the  Aasociated 
banka  of  New  ^ork  are  accuatomed  to  act  together  for  mntnal  protection 
■n  timea  of  financial  .treaa.  Again  and  again,  they  have  combined  their 
reserve.,  the  strong  protecting  the  weak,  and  thia  with  ao  much  wiadom 
that  no  danger  has  been  incurred,  and  no  undesirable  conaequeneea  have 
followed.  The  Clearing-Houic  of  New  York,  which  ha.  aupplied  the 
machinery  for  this  united  action,  ia  beyond  doubt  one  of  the  best,  if  not 
the  best,  managed  institutions  of  the  kind  in  the  world. 


CHAPTER  XXXir. 
VAEI0TJ8  THBOEIES  OF  NOTE  OIECULATION. 

AMOVGST  th.  vario-  theorie.  that     have  prevailed  on  thU  topor- 
A    t-tVub  ect.  the  following  have  been  "-e  mo't  impo^nt^ 

ri„,._Th.t  all  promissory  notes  designed  f  P»"  "  ™"^ 
.hould  be  issued  by  the  Government  of  the  eountry  n,  wh.eh  they  are 

''t'o'L!^ltat-all  eireulating  note,  .hall  be  issued  under  Government 
.upfrvision,  and  be,  strietly  --ed  by  G^vernmen    h„nd.^  ^^^^^^^ 
.  Ji;:^^::":'3  :reI^tZtu^  u^er  authority  o. 

e„r^rath?i;Ve.o.usJdea^ngs.^^^^^^^^^^^ 

paid-up  oaWlal;  such  notes  being  by  law  a  first  hen  yn  all  the  assets 
L  resources  of  the  bank,  and  further  secured  by  depos.t.  of  money 

''"•:^?r  ^:  z:  ^t^r^i^tt. .  ^  ^ « . 
b;pti^i:^er:fv::ir:^rir;sx;it 

'""if  is  proposed  to  consider  these  systems  in  their  order. 
GonnKUiNT  Noti   Issom. 
The  first  theory,  namely,  that  the  Government  of  the  C"™*^  *''^* 
be  the  oni;  m^ium^'for  the  issue  of  circulating  note,  wa.  thoroughly  di.- 


VARIOUS  THEORIES  OF  NOTE  CIRCULATION.        279 


cuued  in  Canada  both  by  the  press  and  In  Parliament  about  the  year 
1866,  when,  under  the  auspices  of  the  Finance  Minister  of  the  day,  it 
was  proposed  to  abolish  the  issue  of  notes  by  the  banks  and  to  labstitute 
for  them  the  notes  of  the  Government. 

The  banks  of  the  country,  with  one  exception,  were  opposed  to  the 
Goremment  assuming  this  function.  Amongst  other  things,  they  stated 
tbat  it  would  be  impossible  to  put  an  efficient  check  upon  over>issnei  by 
the  Government,  should  pressing  necessities  arise,  for  with  every  Govern- 
ment the  law  of  self-preservation  is  paramount,  and  would  override  all 
other  considerations. 

Second,  that  such  issues,  if  continued,  would  inevitably  depreciate  the 
value  of  the  bills  and  unsettle  every  financial  interest  of  the  country. 

At  the  very  time  when  this  theory  was  propounded  in  Canada,  the 
notes  of  the  Government  of  the  United  States  were  at  a  heavy  discount. 
(It  may  be  added  that  eleven  years  elapsed  before  they  were  worth  par.) 
It  was  pointed  out  that  repeated  experience  had  shown  that  there  was  no 
limit  to  the  depreciation  of  Government  notes;  that  every  Government 
currency  then  circulating  in  the  world  was  at  a  discount,  Italy  and  Russia 
being  cited  as  examples;  that  such  currencies  in  former  days,  though 
issued  by  governments  which  had  proved  perfectly  stable  in  other  re- 
spects, had  fallen  to  such  a  discount  as  to  be  practically  worthless. 

Finally,  the  broad  ground  was  taken  that,  though  it  was  the  un- 
doubted function  of  the  Government  to  stamp  coin,  and  give  authority 
to  issue  notes,  the  function  of  redemption  was  one  that  peculiarly  per- 
tained to  bankers ;  that  nothing  is  more  easy  than  to  issue  bills ;  nothing 
more  difficult  than  to  maintain  constant  redemption  of  them.  Moreover, 
the  issuing  of  circulating  bills  sliould  be,  and  would  be,  if  healthy, 
closely  connected  with  the  daily  operations  of  commerce,  which  is  not  in 
the  sphere  of  government  but  of  banking.  It  was  pointed  out  that  a 
government  as  a  borrower  of  money  is,  in  many  respects,  in  the  same 
position  as  an  individual,  or  an  ordinary  corporation;  that  there  is  no 
charm  about  the  organization  called  a  government  to  make  it  safe  under 
all  circumstances;  that  a  government  may  fail  to  meet  its  obligations, 
may  compound  with  its  creditors,  and  may  actually  compound  on  the 
composition,  as  Spain  has  done.  A  government,  it  was  said,  may  re- 
pudiate its  obligations  altogether  (as  has  been  actually  the  case),  and 
may  have  its  obligations  protested  by  millions,  and  not  make  the  slightest 
effort  to  pay  them. 

Such  were  the  reasons  which  had  weight  with  the  bankers  and  people 
of  Canada  at  the  time  named,  and  induced  them  to  organise  opposition 
to  the  project  of  having  all  circulating  bills  issued  by  the  Government  of 
the  day. 

It  is  true  that  subsequently  in  Canada  an  act  of  Parliament  was 
passed,  authorizing  the  Government  to  issue  one  and  two  dollar  bills  for 
circulation,  and  also  bills  of  large  denominations  not  for  circulation,  but 
for  the  convenience  of  the  banks  in  making  settlements  with  each  other; 


k 


CM  BANKING    AND    COMMERCE. 

one  provision  of  the  »et  being  Ih.l  the  bank,  .hould  hold  «  «rt«ln  p«- 
lt.ge  of  their  e».h  re.erve,  in  these  note..  To  thi.  they  .ubn-itt^ 
Heinf  that  the  aet  required  the  Government  to  hold  a  large  pe'«ntago 
of  i",  issue,  in  .etna,  gold,  and,  in  addition,  to  hoU  •'"hor..ed  deben  u™ 
for  the  balanee.  This  .y.tem  i.  preei.ely  that  of  the  Bank  of  EngUni 
And  to  .ay  truth,  none  of  the  danger,  whieh  .ere  eons,dered  to  b.  bo^^d 
„D  with  issues  of  the  Government  have  transpired  .o  far.  Re.pee'Jng 
thisrhowever,  t,o  observations  have  to  be  made:  first,  that  the  .y.tem  of 
Go4rnment  i,.ue.  in  Canada  for  cireul.tion  i.  only  a  very  P"H«1  ->"«. 
and  seeondlv,  that  at  times  when  large  note,  were  pre.ented  for  redemp- 
Hon  hv  banks'that  needed  gold  for  e.port,  the  banker,  of  the  Gov'^nent 
were  Willing  to  a,si.t  in  meeting  the  demand.  The  .y.tem,  mdeed  ha. 
never  been  very  severely  tried.  w  j  <•    »  .!,.>  .Ikm 

With  regard  to  the  United  State.,  it  i.  an  undoubted  faet  that  .InM 
the  Federal  Government  re.umed  payment  in  .pecie-and  it  ™  ">»« 
han  twelve  year,  after  the  war  terminated  that  they  did  .o-none  of  the 
evil.  fore.hIdowed  in  Canada  a.  a  eon.eq«enee  of  Government  .s.ue. 
have  transpired.  But  it  has  to  be  said  again,  that  the  .y.tem  of  Govern- 
ment i..ues  sinee  the  war  ha.  never  been  severe^  t«ted,  «"d  al»»  *' 
the  Government,  during  the  whole  period,  ha.  been  .t.  own  b"*",  J- 
way.  having  .tore,  of  gold  in  po..e.,ion,  the  prodoet  of  over-.uffielent 

"^Moreover,  whatever  evil,  might  Iw  developed  by  a  .ystem  under 
whieh  the  Government  would  be  the  sole  i..uer  of  eirculating  note.,  wch 
would,  even  under  pre..ure,  be  mueh  le..ened  when  '"PP^mented  by  . 
.ystem  of  bank  i..ues,  a.  :.a.  been  the  caK  in  the  Umted  State.. 

Had  the  agitation  for  a  silver  basi.  for  Government  i..ue.  bee"  .uc- 
cessful  (and  thi.  momentou.  question,  at  one  time,  wholly  ^'P™f J^* J" 
the  uneertain  issue  of  a  Presidential  eleetion)  it  i.  eertam  th«t  'n  .udh 
an  event  gold  would  have  gone  to  »  eon.ider.ble  premium,  and  the  not« 
of  the  Government  to  a  heavy  diaeount.  The  trend  of  opinion,  even  in 
the  United  State.,  i.  in  the  direction  of  graduaUy  withdrawing  Govern^ 
ment  note,  from  aelual  eirculauon,  and  eonfining  them  to  the  i..ue  of 
.ueh  gold  certi/Scale.  a.  are  in  u,e  now  in  the  larger  eentre.  exehange. 
able  for  gold  at  the  pleaanre  of  the  holder.  But  the  idea  of  the  whole 
i.,ue.  of  a  eounlry  being  that  of  the  Government  lo.e.  favor  when  ex- 
.mined  in  the  light  of  event.;  and  for  thi.  reason  e.peeially,  if  none 
other,  eould  be  alleged,  .ueh  issue,  cannot  nossibly  eorre.pond  to 
the  movement,  and  requirement,  of  commerce. 

Bank  Notb.  Sectoid  bt  Goternmikt  BoNns. 
The  second  theory  is  that  whieh  prevail,  in  the  United  SUle.  under 
the  National  B.nk  Aet.  Under  thi.  system  .11  bank  issue,  are  .ecured 
by  Government  bond..  They  are  ah-olutely  restricted  to  .  certain  per- 
cent.ge  of  the  capital  of  each  issuing  bank,  the  total  amount  cannot  be 
increased  except  by  the  e.tabli.hment  of  new  bank.,  there  being  no  in- 


VARIOUS  THEORIES  OF   NOTE  CIRCULATION.        281 


duccDient  for  existing  banlcs  to  increase  their  capital  for  the  purpose  of 
increased  circulation. 

Under  this  system,  while  the  notes  are  perfectly  secure  so  long  as 
the  bonds  of  the  Government  are  good,  they  would  depreciate  if  the  bonds 
depreciated.  Moriover,  this  system,  like  that  of  Government  notes,  has 
no  correspondence  with  the  inflowing  and  outflowing  movements  of  com- 
merce. The  notes  are  never  presented  for  redemption.  They  are  far  in 
eicess  of  ordinary  reqiiinments  at  one  time,  and  far  below  such  require- 
ments at  another;  the  result  being  those  heavy  fluctuationa  in  the  rate  of 
interest  which  have  always  distinguished  the  New  York  money  market, 
and  which  bring  aljout  periodically  severe  financial  crises. 

The  system,  in  its  practic.il  worliing,  often  leads  to  such  a  scarcity 
of  currency  in  rural  districts  that  business  is  almost  reduced  to  a  condi- 
tion of  barter.  Moved  by  conditions  such  as  these,  strenuous  endeavors 
have  been  made  in  the  United  States  to  bring  about  such  modifications  of 
the  system  as  would  ensure  elasticity  as  well  as  security. 

The  third  system  prevailed  in  the  United  States  before  the  establish- 
ment of  the  national  bank  system;  but  its  defects  were  so  great,  and 
its  .ibuses  so  constant,  that  it  was  abolished  at  the  beginning  of  the 
Civil  War  withoi''  ji.;-  resistance,  and  has  never  since  sought  to  he  re- 
habilitated. 

Issues  op  the  Bank  of  England. 
The  fourtli  is  the  system  of  the  Bank  of  England.  The  notes 
of  the  Bank  of  England  are  legal  tenders  everywhere  in  England  ex- 
cept at  the  counter,  of  the  Bank,  where  they  are  interchangeable  for 
gold.  For  many  generations,  and  up  to  the  passing  of  Sir  Robert 
Peel's  Act,  there  was  no  statutory  limit  to  the  issue  of  the  Bank  of  Eng- 
land notes.  But  there  was  a  constant  and  never-ceasing  restriction  upon 
such  issues  by  the  necessity  of  redeeming  them  in  gold.  This  restriction, 
however,  ceased  to  operate  during  the  period  of  the  Frenth  Revolntion- 
ary  War.  Specie  payments  were  then  suspended  and  not  resumed 
nntil  some  years  after  the  war  had  closed. 

At  that  time,  as  might  be  expected,  gold  went  to  a  premium,  which 
premium  was  disguised  under  the  price  per  ounce  of  gold  bullion; 
which  was  much  higher  when  paid  for  in  Bank  of  England  notes  than  in 
gold  coin.  The  discussions  that  look  place  in  Parliament  at  this  period 
with  regard  to  the  Bank  of  England  issues  and  the  price  of  gold  dis- 
play a  most  remarkable  want  of  apprehension  of  the  real  bearings  of 
the  question  on  the  part  of  eminent  statesmen  and  members  of  Parliament 
Although  for  years  it  was  patent  that  a  certain  number  of  pounds  of  Bank 
of  England  notes  would  not  buy  nearly  the  same  amount  of  commodities 
.IS  the  same  amount  of  money  in  gold  coin,  it  was  strenuously  denied 
by  certain  thinkers  that  the  notes  were  at  a  discount.  This  might  be 
deemed  incredible,  if  the  fact  were  not  so  well  established.  The  premium, 
indeed,  was  never  high;  not  more  thiin  fifteen  or  sixteen  per  cent.,  but 
guineas,  which  were  the  standard  gold  coin  at  the  time,  were  perfectly 


i 


S,5  BANKING   AND   COMMERCE. 

well  known  to  b.  worth  .boot  th.t  much  b.yond  Bank  of  EngUnd 

.h.t  gold  w..  in  .bnonn.1  dr'"^/;;;;;^    ,"    pcrfeoUy  evld«.t 
„,(*  the  ordim.r!)  operat«,«  of  *™'ff  """"'•    "^^  during  the 

'"""This  wa,  th.  truth,  however,  that  had  to  be  learned  by  "perieoee;  for 

•"'Caftr  the  great  panie  of  1S.5   ^^'""^^^^^ ^^^^^^^ 

quent  event.  d™™f' "^-     ^'  t^  Peel,  k^lati»n  w..  carried 
mind   that   at  length,  under  Sir   Robert   reel,   leg 

nte!bI^roTsrB2"'p:ef-and  the  party  that  acted  with  hnu 

wa,  to  awilh  .11  i..ue.  throughout  *=  ^^f  «*™;«f  j^Vof"  Enjw 

Bank  of  England;  and  further  *f ' '^^.^^.^^ tr  .-/ fivl^-'^ 

z:;^  ^^p^J'-Z"!  ':b;hr  rn-otn^ttrai'S-,: 

"Timet." 


VARIOL'S  THEORIES  OF   NOTE  CIRCUrATIOX. 


283 


and  did  not  see  that  if  tliis  tlirory  were  thoroiighlv  carried  out  it  would 
be  far  better  not  to  have  any  bank  notes  at  all.  Why  should  any  cor- 
poration, or  even  any  f^overnment,  go  to  the  expense  of  printing  bank 
notes  and  incur  the  risk  of  paying  forged  ones,  if  for  every  note  issued 
ther^  must  be  a  corresponding  amount  of  gold  in  the  till?  In  that  case, 
why  not  pay  out  the  gold  at  once?  Why  not  have  a  simple  gold  currency, 
and  save  the  risk  nnd  expense  of  paper  notes? 

Under  suth  n  theory  there  is  no  possible  object  to  be  gained  by  is- 
suing paper  money;  and  it  would  be  obviously  more  profitable  not  to 
use  it.  It  never  seems  to  have  dawned  upon  these  theorists  that  the  very 
foundation  and  raiaon  d'etre  of  paper  money  it  to  economise  the  ute  of 
gold. 

Against  this  reasoning  it  may  be  urged  that  the  bankers  who  were  in 
fnvor  of  this  currency  measure  were  not  mere  theorists,  but  mostly  Lon- 
don bankers  of  large  experience,  who  thoroughly  understood  the  subject 
they  were  treating  of.  This,  however,  is  a  mistake.  London  bankers 
they  were,  certainly,  and  men  of  the  largest  experience  truly  in  some 
departments  of  banking.  But  it  is  a  simple  fact,  that  in  the  matter  of 
the  issue  and  redemption  of  circulation,  they  had  no  experience  what- 
ever. London  bankers  had  given  up  issuing  their  own  notes  for  nearly 
fifty  years.  Not  one  of  them  knew  anything  of  the  subject  by  his  own 
practical  experience;  for  not  one  of  them  in  his  lifetime  had  ever 
issued  or  redeemed  a  single  note  of  his  own. 

In  no  dcpnrtmenl  of  finance  is  the  mnxim  "experientia  docet"  more 
upplioable  tlinn  to  that  of  circulation.  Their  answers,  therefore,  to  the 
voluminous  series  of  questions  put  to  them  were  all  the  speculations  of 
impractical  theorists. 

But  e\-en  with  these,  when  the  idea  was  proposed  to  be  applied  to 
the  Bank  of  England,  and  to  require  that  the  Bank  should  hold  gold  for 
every  note  it  issued,  an  enormous,  and  what  proved  to  be  an  iniurmomit- 
able  obstacle,  loomed  up.  There  was  not  enough  gold  in  the  countrr  to 
meet  this  requirement.  If  even  an  attempt  had  been  made  to  put  it  in 
operation,  a  tremendous  disturbance  of  business  and  unparalled  tight- 
ness of  money  would  have  ensued.  In  order  to  get  such  an  amount  of 
gold  as  that  into  the  Bank  of  England,  it  would  have  been  necessary  to 
appeal  to  foreign  countries;  for  it  certainly  could  not  have  been  spared 
in  England.  But  it  could  not  have  been  taken  from  foreign  countries  by 
force,  it  could  only  be  got  by  selling  abnormal  amounts  of  consols 
abroad;  or  by  making  forced  sales  of  British  goods. 

But  even  these  resources  would  not  have  availed  to  a  sufficient  ex- 
tent; for  foreign  governments  would  soon  have  put  a  stop  to  the  drain  of 
gold  when  they  saw  what  was  going  on.  It  was  an  absolute  necessity, 
therefore,  for  Sir  Robert  Peel  to  modify  his  theory  to  a  large  extent 
The  idea  of  compelling  the  Bank  to  hold  gold  for  every  note  it  issued 
was  abandoned;  and,  as  the  Act  finally  passed,  the  govemort  were  al- 
lowed to  issue  notes  against  the  debt  owing  to  them  by  the  Oovemment. 


'1 

i 

If 


M 


t»t  BANKINO   AND   COMMERCE. 

A  coniidoMlJc  part  of  Itf  Imum,  therefore,  have  never  been  repreientcd 
by  gold  nt  nil ;  nnd  tlir  curiinrv  thiory  lirokc  down  from  thi'  very  momcnf 
11  WM  otlcmpled  to  carty  It  Into  practice. 

But  wilu  regard  to  the  remainder  of  iti  l»ue>,  Sir  Robert  thought 
be  coold  contrive  a  machine  which  would  work  automatically  and  eniure 
the  convertibility  of  the  rcit  of  the  notea  into  gold  under  all  circnm- 
itances;  for  under  iti  operation  the  circulation  would  flow  out  and  In 
exactly  as  if  it  were  metallic. 

Thia  machine  wa«  the  celebrated  device  of  the  leparation  of  the  l»- 
■uing  department  of  the  Bank  from  the  banking  department. 

All  the  notrs  of  the  Bank  were  to  be  iuned  by  the  iuuing  depart- 
ment, and  only  in  exchange  for  gold.  Gold  wa«,  of  courac,  to  be  given 
for  notes  when  demanded.  The  banking  department  could  not  get  notes 
to  do  business  with  except  by  handing  gold  to  the  issuing  department. 
Under  this  system  it  was  concluded  that  there  could  be  no  possibility  of 
an  overisine,  and  that  for  the  future  there  would  be  no  more  gnancial 
panics  and  revulsions. 

But  the  Act  went  much  further  than  to  deal  simply  with  the  circula- 
tion of  the  Bank  of  England.  There  were  large  numbers  of  banks  in 
England  that  regularly  issued  circulating  notes.  Some  of  these  were 
private  banks,  some  of  them  joint  stock.  It  was  intended  by  Sir  Robert 
Peel  to  abolish  the  circulation  of  all  these  banks;  for  they,  like  the  Bank 
of  England,  were  blamed,  though  without  reason,  for  overissuing,  and 
thus  assisting  to  bring  about  panics.  But  these  banks  of  the  country 
made  sneh  a  strenuous  resistance  to  the  abolition  of  their  notes  that  Sir 
Robert  was  compelled  .o  consent  to  a  modification  of  his  scheme.  After 
considerable  discussion,  which  indicated  on  the  part  of  Peel  and  hii 
Government  a  singular  want  of  apprehension  of  the  real  bearings  of  tht 
subject  (as  contrasted  with  the  views  of  practical  men  like  the  country 
bankers),  a  basis  of  restriction  was  agreed  upon.  The  average  circu- 
lation of  the  preceding  three  years  waa  taken,  which  amount  being  duly 
registered,  was  fixed  as  the  limit  beyond  which  the  country  banks  were 
not  to  extend  their  issues  in  future.  Returns  of  the  circulation  of  these 
banks  were  hereafter  to  be  published  in  the  "Gaiette,"  and  so  they  have 
been  ever  since,  as  well  as  in  the  London  "Bankers'  Magaaine."  It  was 
provided  also  that  in  case  a  bank  discontinued  business,  its  circulating 
powers  must  lapse  to  the  Bank  of  England. 

The  Scotch  banks  made  even  a  more  strenuous  resistance  than  the 
country  banks  of  England,  and  by  their  compactness  and  unity  of  action 
were  able  to  bring  strong  pressure  to  bear  upon  the  Government.  It  waa 
finally  agreed  and  embodied  in  law  that  the  Scotch  banks  should  continue 
to  circulate  bills  as  before  to  the  extent  of  the  average  of  the  three  pre- 
ceding years;  but  with  this  hnportant  proviso,  that  they  might  circulate 
to  any  amount  beyond  that,  provided  they  held  gold  to  cover  the  extra 
amount.  On  this  basis  the  issues  of  the  banks  m  Scotland  have  con- 
tinued ever  since. 


VARIOUS  THEORIES  OF   NOTE  CIRCULATION. 


S89 


In  Srotland.  ai  in  Cnnada,  there  if  always  an  expantion  of  circula- 
tion during  acvrral  monthi  of  the  year.  At  that  time  it  hni  been  tbe 
custom  of  the  Scotch  banks  to  augment  their  s^ock  of  gold  by  the  amount 
calculnted  to  be  required.  Boxes  of  gold  are  regularly  sent  down  fron 
IiOndon  to  Scotland  for  the  purpose;  but  It  is  a  well  known  fact  in  bank- 
ing circles  that  the  boxes  are,  as  a  rule,  never  oprned,  and  are  returned 
to  London  exactly  as  they  cnme  when  the  period  of  expansion  doses. 
It  should  be  remembered,  moreover,  that  the  circulation  of  notes  is  very 
much  larger  in  Scotland  than  in  England  owing  to  the  I'act  that  banks 
Imiii'  one  pound  notraJ' 

All  this  legislation  took  place  in  the  year  1844,  or  soon  afterwards; 
and  upon  this  basis  the  circulation  of  notes  in  England  and  Scotland 
has  continued  ever  since.  The  notes  of  the  Bank  of  England  are  issued 
to  the  extent  of  its  holding  of  Government  bonds  and  of  its  gold  In 
possession.  The  English  banks  (thot-e  that  circulate  at  all)  issue  up  to 
the  amount  established  by  law.  The  Scotch  banks  to  this  latter  amount 
with  the  addition  of  gv.ld  in  hand  to  the  exceat. 

But  it  is  to  be  noted  that  the  question  of  ieeuring  note  issues  seems 
to  have  been  considered  quite  subordinate  in  importance  to  that  of  pre- 
venting what  were  thought  to  be  overissues.  As  a  matter  of  fact,  the 
only  notes  of  the  Bank  of  Englond  that  are  absolutely  secured  are  those 
against  which  gold  is  held  by  the  issue  department.  Government  bonds 
are  liable  to  heavy  depreciation  whenever  war  supervenes.  For  notes 
Issued  by  English  banks  nu  special  security  is  held  at  all.  Note  holders 
and  depositors  stand  on  precisely  the  same  footing  in  respect  of  their 
claim  upon  the  assets  of  the  banks. 

In  the  cane  of  the  Scotch  banks  there  is  even  n  more  striking  anomaly; 
for  while  supplies  of  gold  are  sent  up  to  Scotland  as  a  baiU  for  extended 
issues,  the  gold  is  not  constituted  a  special  security  for  their  extended 
issues.  It  forms  a  part  of  the  general  assets  of  the  bark,  and  the  de- 
positors have  just  the  same  claim  to  it  as  these  very  notes. 

But  in  fact  the  Act  all  throughout  as  respects  Scotland  is  most  in- 
consequent. To  carry  it  to  a  logical  conclusion,  special  issues  of  notes 
ought  to  have  been  directed  for  the  excess;  each  of  them  stamped  with 
the  words  "this  note  is  secured  by  specfal  deposit  of  gold."  But  the 
bankers  of  Scotland,  shrewd  men  as  they  are,  would  never  have  consented 
to  luch  discrimination  nuninst  their  ordinary  issues.'"' 

But  the  important  question  remains,  viz.,  has  that  Act,  or  has  it  not, 
fulfilled  one  great  purpose  of  its  enactment,  namely,  the  placing  of  the 

75  Onp  of  the  fnnclw!  of  thP  currency  theorists  had  t>een  that  what  they  called 
the  overiaaue  of  the  Bank  of  England  had  arUen  from  Its  power  to  Issue  one 
pound  notes.  They  were,  therefore.  alxiUshed.  very  un«l.-ely.  One  of  the  most 
singular  features  of  the  lonf  discussion  that  took  place  at  that  period  was  that 
scarcely  a  single  reference  was  made  to  the  example  of  Scotland. 

78  In  making  these  observations  It  Is  not  Intunded  to  cast  the  slightest  doubt 
upon  the  security  of  bank  notes  In  Great  Britain/  The  notes  are  abundantly  se- 
cure. But  they  are  not  sMurs  by  reason  of  the  provisions  of  Sir  Robert  Peel's 
Act. 


ill 


t:6 


B.-.N'KIVC    AM)   COMMERCE. 


0iuncei  of  country,  ni  rrprctt-ntt'd  nnd  cotitrullcd  by  bnnki,  upon  lucb 
■  bfliii  aa  would  ritlur  pn-vint  financial  pAnici  in  the  future,  or>  if  they 
ibould  rrcur,  cniurc  that  thry  should  be  of  very  limited  extent? 

A  general  Idea  prevniled  that  It  would;  which  idea  wai  founded  ui>on 
a  eertnin  theory  (which  theory  had  the  support  of  many  eminent  namei) 
vii.,  that  all  panics  being  due  to  overtradinft  and  speculation  (as  wa«< 
universally  acknowledned)  nnd  such  overtrndinft  and  speculation  being 
largely  fostered,  and  helped  (as  they  supposed)  by  the  overissues  of 
banks,  If  overissuing  was  stopped,  overtrading  and  speculation  must,  per- 
ft  .T,  i/C  prevented  or  confined  within  such  narrow  limits  that  panics  and 
revulsions  would  ct-nac  to  trouble  the  land. 

But  ains  for  the  vanity  of  human  cxpectrttioni!  Within  three  years 
from  the  passing  of  the  Act,  a  wave  of  panic  swept  over  the  country 
once  more.  And  strange  to  say,  it  was  found  that  the  effect  of  the  Act 
was  to  inteniiify  the  severity  of  the  panic,  nnd  that  the  only  recourse 
avnil.ible  to  prevent  the  Htoppnge  of  the  Bank  of  England  itself,  and 
with  it  n  condition  of  iiniverani  bankruptcy,  was  to  tuapend  the  operation 
of  the  Act!  When  the  alternative  became  pressing,  shall  the  Bank  Act 
be  suK))ended,  or  shall  the  Bank  of  England  itself  suspend,  theory  gave 
wny  and  commnn  sense  asserted  Itself.  The  Act  ttaa  suspended  by  order 
in  Council,  and  the  wave  of  panic  began  to  subside  Immediately. 

Within  a  few  months  a  normal  condition  of  finance  prevailed.  But 
so  inveterate  is  the  force  of  tradition  in  English  legislation  that  no 
thought  seems  to  have  arisen  of  revising  the  provisions  of  the  Act.  It 
came  into  force  again;  and  again  it  was  fondly  hoped  that  peace  and 
security  would  prevail.  But  the  hopes  of  the  theortsta  were  again  and 
again  disappointed.  After  the  lapse  of  ten  years  another  period  of  over- 
trading :n:  I  speculation  set  In,  not  in  England  only;  and  again  it  was 
evident  that  the  Bank  Act  aggravated  the  pressure.  The  operation  of 
the  Act  was  accordingly  suspended  again;  an  experience  that  was  re- 
peated once  more  about  twelve  years  afterwards. 

All  this  demonstrated  the  truth  of  what  the  opponents  of  the  Act 
contended,  viz.,  that  panics  arise  from  other  causes  than  overissues,  that 
overissues,  sn-called,  do  not  originate  or  help  them,  and  that  restricting 
issues  will  not  prevent  them;  and  that  Sir  Robert  Peel's  Act  was  nothing 
but  a  "fair  weather"  Act  which  would  always  have  to  be  set  aside  when 
a  storm  arose.  The  fact  is  undoubted  that  after  the  Act  waji  passed  the 
course  of  commercial  and  financial  affairs,  and  especially  the  waves  of 
inflation  and  speculation,  the  fortunes  and  misfortunes  of  commercial 
houses  and  banks,  prf>cecded  exactly  as  they  did  before. 


The  Basis  of  Note  Circulation  in  Canada. 

The  seventh  of  the  systems  of  circulotion  named  above  is  that  which 
now  prevails  In  Canada.  '  It  is  the  final  result  of  the  long  process  of 
what  may  be  called  financial  evolution.  The  distinguishing  features  of 
this  sTstem  are  as  follows : 


VAHIOUS  THEORIES     .    NOTE  CIRCULATION.        i87 


Firtt. — That  thr  right  to  istue  nolft  for  drculution  ihall  be  eonllned 
to  corporattoni  that  are  rrgtttcrrd  under  the  proviilona  of  the  Banking 
Act. 

Scroll''. — That  no  lurh  bnnk  ihall  iuue  notei  until  It  has  •  mininum 
of  five  hundred  thouiand  capital  lubicribed,  and  of  two  hundred  and  fifty 
».     4iand  paid  up. 

Third.— Thnt  the  .imount  of  luch  latuca  ahall  be  kept  within  the  limit 
of  the  paid  up  capital. 

Fourth. — And  Ihnt  nil  inch  nntm  Hhall  rnnatitute,  in  cnnv  nf  failure 
of  the  bank  iwuing  them,  a  firat  lien  upon  all  itf  otteti,  and  upon  th» 
double  liabilitg  of  the  aioekholdert  in  addition. 

For  Rome  years  after  iti  enaetmrnt,  thia  Important  provision,  which 
is  the  keynote  and  distinguishing  feature  of  ihe  note  circulation  of  Can- 
ada, stood  alone. 

But  to  mnke  assurance  doubly  sure,  there  was  added  to  it  after  u  time 
■  system  of  contribution  by  each  bank  of  a  certain  sum,  proportioned 
to  its  circulation,  to  constitute  a  guarantee  redemption  fund,  which  fund 
is  deposited  with,  and  is  at  the  disposal  of  the  Government,  for  the  re- 
demption of  the  notes  of  any  insolvent  bank,  should  the  provision  pre- 
viously named  prove  insufficient.  And  should  this  fund,  under  any  con- 
junction of  circumstances,  prove  also  insufficient,  provision  is  ip  Je  for 
futher  contributions,  until  the  redemption  of  every  note  is  actually  ac- 
compllshed.  The  eiTect  of  this  is  very  far-reaching;  for  it  assures  that 
every  possible  asset  of  every  bank  in  the  country,  including  the  double 
liability  of  them  all,  is  pledged  for  the  redemption  of  the  notes  of  any 
single  insolvent  bank.  The  whole  of  the  banka  of  Canada  arc  therefore 
pledged  for  one  another  in  the  matter  of  the  ultimate  redemption  of  tu-lr 
circulating  notes,  affording  a  security  for  the  issues  much  beyond  any- 
thing existing  in  the  world. 

It  is,  however,  interesting  to  note  that  the  provision  by  which  notes 
are  made  a  first  Hen  in  case  of  a  bank'i  failure  has  invariably  proved 
sufficient  for  the  redemption  of  its  whole  Issue.  In  no  one  inttance  haa 
it  been  necessary  to  fall  back  upon  the  redemption  fund;  even  though, 
as  it  has  happened  In  more  than  one  case  during  a  number  of  years,  the 
issuing  bank  has  been  grossly  mismanaged.  Even  when  In  a  certain 
bnnk,  by  means  of  frnud  and  concealment,  a  large  issue  was  effected  be- 
yond the  statutory  requirement,  the  whole  of  them  were  redeemed  out 
of  the  assets  of  the  bank  itself.  Thus  the  security  by  first  lien  has  stood 
the  severest  tests  to  which  any  system  could  be  exposed.  But  with  the 
redemption  fund  behind  it,  the  tafeiji  of  Canadian  bank  note  issues  ii 
guarded  beyond  any  possibility  of  failure. 

How  Elasticity  Is  Secured. 
Yet  with  all  this  there  has  been  ample  provision  made  for  the  impor- 
tant matter  of  elaaticity.    This  feature  of  note  issues  is  that  which  makes 
them  correspond  with  the  movements  of  commerce  from  season  to  season, 
and  from  year  to  year. 


I 


MS 


BANKING   AND  COMMERCE. 


CoaiiEera  bcfiu  *«  Ibc  point  when  pradnetioB  to  latokcd.  Wkaa 
Ikt  huTdt  of  u  atrteiUtiinl  caaiitrjr  like  Cuuda  to  icadj  for  uk,  Iha 
nwrclunt  ttcpi  In  with  olTcn  to  psrchaic  It.  Bat  experlenn  ku  dmon 
•trated  that  ponhMM  of  onrlcnltunl  pradtm  on  only  ho  curled  od 
by  the  nnplojmcnl  of  raimit  monej.  The  luuitiiieBle  of  eoameice  In 
towns  and  citia  eon  he  and  are  almool  wholly  effected  bf  eheekl,  hUlt, 
and  promlMorjr  notcf.  Bot  for  parchaee  of  agrlcnltii.'al  prodocta  from 
the  prodncer  In  conntry  dlitrleti  nothing  will  aniwer  but  cnrrent  moneyi 
eoln  for  imall  change,  and  notea  for  larger  Irsnuctlona.  When,  there- 
fore, the  time  of  harreit  conci  ronnd  and  pnrchsin  begin  to  be  aetire, 
an  Immenie  demand  for  notei  icta  in;  an  immenae  outflow  of  notei  takca 
place,  which  continuei  Incrcuing  until  the  larger  part  of  the  harreat 
panes  into  the  hands  of  the  merchant.  Thto  great  annual  outHow  of 
oionej  (the  ssme  that  prdrails  also  In  the  United  States,  in  Scothuid, 
and  the  agricultural  parts  of  England)  necessitates  that  there  shall  be 
powers  of  Issue  with  the  banks  orer  and  abore  the  ordinary  requirements. 
This  power  of  eitra  Issue  In  Scotland  is  prorided  by  (he  holding  of 
gold:  not  at  all  an  economical  process.  It  Is  prorided  In  Canada  by  the 
uited  capital  of  the  banks  being  always  kept  at  a  point  far  higher  than 
that  to  which  circulation  erer  rises  at  its  highest  lerel.  Thus  the  power 
of  the  honks  to  provide  for  the  largest  outflow  of  notes  is  eronomicaUir 

For  a  long  period  previous  to  the  derelopment  of  the  great  whea^ 
(rowing  regions  of  the  Northwest  the  circulation  of  the  Canadian  banks, 
as  a  whole,  at  its  highest  point  year  by  year  was  far  below  their  united 
capital;  that  Is,  far  below  their  circulating  power.  But  in  the  year  1901 
•0  vast  was  the  harreat  of  the  Northwest  that  this  highest  point  ap- 
proarhcd  so  near  to  the  united  capital,  before  the  reflex  ware  set  in,  that 
the  banks  came  io  a  general  eonclualon  to  increase  their  capital.  F  .ch 
one  acted  for  itself,  on  its  own  judgment  in  the  matter,  and  according  to 
its  special  necessity,  in  order  to  provide  for  the  expansion  in  future 
years.  Capital,  therefore,  has  been  Increased  and  the  great  outflow  fully 
provided  fcr.  This  will  undoubtedly  continue  to  be  the  case  if  necesatty 
arises  again. 

Thus,  then,  there  to  always  a  reserve  of  circulating  power  in  the 
country;  for  when  the  reflex  wave  sets  In,  notes  return  to  the  banks,  and 
there  accnmnlate  until  a  vast  store  lies  ready  In  the  safes  of  the  banks 
waiting  for  the  great  demand  to  act  in  for  the  movement  of  the  crops 
in  the  autumn. 

Let  it  be  noted  that  by  this  method  the  utmost  economy  of  flnance  has 
been  secured;  for  the  capital  of  the  banks  that  has  been  paid  up  to  avail- 
able for  commercial  purposes  as  well  aa  the  store  of  notes  that  a^c  based 
upon  it  when  wanted.  The  notes  that  lie  in  the  bankers*  safes  ready  for 
the  great  outflow  dtoplace  nothing. 

Thus  it  to  that  the  diiScnlt  problem  of  combining  absolute  safety  with 
perf'  et  elaeticity  has  been  solved.    As  to  the  saftiy,  it  has  been  shown  to 


VABIOUS  THEOBIES  OF  NOTE  CIHCL'LATION.  tM 
k.  of  u  „„  hlfhn  depee  than  thit  of  lh«  !»»«  of  the  Buk  of  Ev 
iT'tZ.      """•"•»•'  ''»'••  •'  "«  United  St.t«,  while  Ito  tUMMIr 

opcMon  .nd  Ih..  In  .  ™anl,y  where  the  purwlt.  „f  .^caltur.  .nd 
loFMlrj-  fumiih  •  very  Lrge  pri|»r«lon  of  It.  .nniul  production." 

t<wlli,r  with  iht  >moiii<l  ■Imrt^.nj  ..k^  ...     "^  ^  '^'  ""  '•'"•'  """I". 


; 


CHAPTER  XXXr. 
B/NKIMa  ACT  or  CANADA. 

Va».OU.  Ci,AU.F.  OV  IHt    AcT-ShAHM   »ND  S.IAnE..OLD£B^-D.»ECTOB. 

-l^PowER.    o.     B,x-K,-  -Dkpo«ts-Re.f.»ves-Sta«ments-In.o.- 

VENCV — PrN  AMIES. 

TT  is  d«ir.ble  in  a  work  like  thi,  that  »  statement  of  the  Ictog  fe.- 
1  „„e»  of  the  Act  nnder  which  chart,  red  banks  do  bn.mess  m  Canad. 
should  be  n>,de  in  snch  a  form  as  to  be  understood  by  all  classes  of 
the  eommunilv.  For  all  classes  are  interested  in  banks,  whether  they 
desireTo  n„,,  i„,,„„eh  as  the  bulk  of  the  notes  circulating  as  n,„ney 
are  .sued  bv  them.  Whether  a  n,an  has  money  to  deposit  or  not,  whether 
"not  he  needs  money  to  carry  on  his  business  he  must  '"  «>'  "ature  o 
thin«  'f  he  lives  in  Canada  at  all,  sometimes  have  the  notes  of  a  tana 
di  n*bank  in  hi,  possession  and  carry  them  a.  his  risk.  But  the  prov,. 
ions  of  the  Act  are  of  interest  to  other,  besides  Canadians,  for  .t  .s  on. 
versallv  admitted  to  he  of  high  eicellenee.  ri„„l,tion 

The  power  to  establish  banks  that  can  issue  notes  for  e.rculat  on 
should  reasonably  be  considered  in  relation  to  the  general  -f-'^f^ 
communitv.  That  should  be  well  understood;  ""•"R"' '"^'^'^^f; ''  ''  ^^ 
times  lost  sight  of.  Banks  do  not  receive  powers  for  the.r  °""  -';'';^^J 
for  the  advantage  of  the  people.     It  is  the  represen  afves  of  '^^  P™Pl' 

,°  Parliament  that  g.ant  these  powers;  and  when  it  is  considered  that  no 
prof  ill  bankerlias  ever  sat  in  Parliament,  and  only  few,  eompara- 
«velv,  of  the  class  of  bank  directors  or  presidents,  .t  become,  appar  nt 
that'bank  legislation  must  have  been  considered  m  .ts  relat.on  to    he 

country  at  large,  .and  not  simply  in  its  bearing  upon  the  .nterests  of  a 

■"'"Ttrctadian  Bank  -Vc,  is  the  fruit  of  many  years  of  discussion^ 
during  which  it  ha,  been  repeatedly  considered  by  committees  ot  t.» 
Ho  se  of  Commons  and  the  Senate,  who  have  had  before  them  yrommen 
me  hers  of  the  mercantile  community,  as  well  as  professional  banker, 
of  experience.  The  Act  its.lf  is  a  consolidation  of  many  separate  act. 
formerly  enacted  by  Canadian  legislatures,  under  which  charter,  to  carry 
en  the  business  of  banking  wore  conferred  on  certain  corporations  The 
provisions  of  these  early  charier,  were  largely  framed  upon  'h°»e  P'f" 
vailing  in  the  United  .States,  with  modifications  suited  to  the  circumstance. 

°'  B'uTso'on  after  the  Province,  of  Canada  were  confederated,  the  gen- 
ial s„l,j,.et  of  hank  charter,  was  taken  up  in  Parliament  with  .  view  to 


BANKING   ACT   OF    CANADA.  jp, 

Ac.  ™der  which  b-nkii,  haten  cTrfied  onT  r'  ""'  °"'  »"'"•' 
ever  since  1871.    At  intervnl,  „f  J„  ,^^    "  '"<^'"P°'"cd  bank, 

e,.ti„„  of  ,he  Act)  it"  p  „  L„„.  h"  r"  ^'"l."*  ""  ""'"  °'  "«  -P" 
ha„.,ivcdi.c„«i„„/a„dvarir,:rX„,''''r  t"  '"'  '"''J^''  °'  '- 
in,  .11  desired  for  the  bettr„Ml  ,  *."  *"'"  '"""P^^'t'i  lhe«- 
nole  tl...  ,t  whole  of  the!!      P'"'""""  "^  "><=  P-Wic     It  i,  worthy  of 

the  ha„.,  .heltst  rver:Z,°;rrt  r  '"^"-''^  ^' 
time,,  hy  far  the  largest  holder"  of  'sf.     '.  '^"  ""^  '""'"  "'•  »*  •" 

fore  be  the  heavier  .o/^reatl^h'  ""'"•  '^'"'^  """^  «««- 
tion.  «"«-",„  ease  there  were  any  fail„„  „f  „j,„p. 

ViKioLg  Ci..u,n»  OP  THE  Act. 

which  may  be  summarized  as  follows  '  '"'*'"«  f"'""  "^ 

Isl.-Cl.uses  which  concern  the  e.;„W;.i„,„(  „f  „  fc„„^. 
2d.-C  auses  relating  ,o  the  „oH-  and  .<oMou'r.; 

res^lZ:         ""'  *°  "'■'''■"'"•  "■*  "''«"■  ^-'"-"ons,  and 

culat;;:'''"'""  "'°""''  '°  "-^  "•"-  -"  "■"'np'io'-  of  notes  for  cir- 

the  G  ■;:;„'r;:  "■'°""*  "■  "■-  "°'--""  '°  >='  --^e  C "he'ban.,  to 
7th.~CIauses  rel.ting  to  insahtnci,; 
8lh.— Clauses  imposing  penallici. 

tbes'e'  3:-°"'  '"  "-"  '""P'"  ">  "'-  "  •>*'  'y-opsi,  of  the  .4ct  under 

Of  the  Est..„l.,„„e.vt  .,xo  Inco„p„„„,o.v  or  a  B,.vk. 

No  hank  can  be  established  unless  an  Act  of  P»rli.™     ,  •      i 
for  the  purpose,  setting  forth:  P.ri>.ment  „  obtained 

( 1 )  The  proposed  name; 

(2)  The  ropiVn;  to  be  suliscribcd; 

(3)  The  hcalltg  of  the  head  office; 
(i)   The  names  of  provithml  dirtciort 

To  such  a  bank  all  the  provisions  of  the  Bank  Act  must  apply. 

be  §^60,000  pa,d  tp  before  bnsiness  can  be  commenced 

No  bu.,„e«,  shall  be  entered  upon  „„ul  a  Certificate  has  been  given 


!l 


BANKING    AND    COMMERCE. 


29« 

pUed  with,  and  this  within  one  year  of  the  paMing  l-- 

'"TrC«,ui«n,ent  ..  to  e.pit.l  w.s  in  view  of  the  power  of  i..u- 
ing  notes  which  the  Act  confers. 

C..X>.E.  E.L.,T.»a  TO  th.'sh*«s  and  Sha«ho«».. 

(1)  Share,  umst  be  »f  °"»'^  »'  ,'ke"' place  each  share  shall  count 

(2)  At  aU  meetings  where  voting  talces  place  eaiii 

for  one  vote.  „  ,         officer  of  the  bank 

Jtl  !X^Z  ;Z;:Z^^;Z..  ^t-L  renewed  ever,  two 
'■'"W  The  names  of  shareholders  must  be  registered  in  books  kept  for 
the  purpose  by  the  bank.  ^^^  ^^^^^  ^te^d 

.  .Sitr  UT:rer°'of'rs:res  is  the  person  whose  name 
"  "(stForCdeb.  to  the  bank  incurred  by  a  shareholder  the  bank 

(7)  They  shall  have  power  to  P»»  ^^  "^'J^  „f    f„i„,  the  num- 

--^^-SSH?i:f^eibo— ' 

*"rsrrLtr."Xt  air;ctors  to  establish  guarantee 
""ira"diitio'nt  the  foregoing  are  clauses  relating  to  the  following  »at. 
*"'m  The  pavment  of  calls  and  penalty  for  neglect. 

r.;  Lists  of  transfers  to  l«e.hiHtednh.^,^^^^^^^^^    ^^^^^  ^^  ^ 

__  -„.^  .*«rrtMi  very  Important  functions  in  the 

ton  p«rllani™t.  f~'-  »•  /^"j";  ,'J^^„  „  follow.; 

,  victoria  cap.  U  and  '■■'"■"'■■*""•        ^j.  Tr.a.ury  Board  coa.l.tln.  of  th. 
,.    Th,r.  .1.11  1»  a  Board  '»  *"  «^'^',  ™™  ^lon»ln,  to  .h.  (3««n'.  Prlv, 

^ro« /or  "i":;.^'  to-rn'or..":.''^" «- .» «-». « >-  o-™"  "■  <=°"°- 

n.llo  d.partm.nt,  or  oHlcr,  or  oiM,  p.r.on. 


BANKING   ACT    OF    CANADA.  igg 

bwik  ihall  not  hr  bound  to  >ee  to  the  eiecntion  of  •ny  trust  to  which 
ihares  in  its  stock  arc  subject. 

In  addition  to  the  above  provisions,  the  Banli  Act  contains  the  fol- 
lowing relating  to  the  capital  us  a  whole: 

(1)  The  co|)ital  may  be  increased  or  decreased  by  a  by-law  passed 
by  shareholders  at  the  annual  meeting,  or  at  a  meeting  called  for  the 
purpose,  to  any  amount  that  may  be  determined,  provided  only  that  the 
capital  paid  up  shall  not  be  reduced  below  $250,000. 

(2)  But  no  such  addition  or  reduction  shall  take  effect  unless  a 
certificate  approving  thereof  has  been  issued  by  the  Treasury  Board. 

(3)  Increased  stock  shall  first  be  offered  to  the  shareholders  pro 
rata  at  such  a  rale  as  may  be  fixed  by  the  directors.  But  no  rate  shall 
be  fixed  which  will  make  the  premium,  if  any,  on  such  new  stock,  exceed 
the  percentage  which  the  existing  reserve  fund  bears  to  the  existing  cap- 
ital of  the  bank.  "^ 

Clauses  Relating  to  Directors. 

(1)  Each  director  must  hold  stock  paid  up  as  follows,  at  least: 
When  the  whole  paid  up  capital  is  $1,000,000  or 

„    '"'    $3,000 

From  $1,000,000  to  $3,000,000 4  ooo 

Exceeding  |3,000,000 3000 

B  -i^}  A  majority  of  the  directors  must  be  naiuraVborn  or  naturalised 

British  subjects. 

(3)  The  whole  of  the  directors  shall  be  elected  annually 

(1)  Vacancies  during  the  bank  year  to  be  filled  up  according  to 

provisions  of  by-laws.  * 

(3)  The  capital  and  all  the  affairs  and  concerns  .:  the  bank  to  be 

managed  by  the  directors. 

(6)  They  shall  have  power  to  make  by-laws  as  follows: 
(o)  As  to  the  management  of  the  business  generally. 
(b)  As  to  the  duties'and  conduct  of  officers. 

(7)  They  may  appoint  such  officers  as  they  consider  necessary,  and 
remunerate  them  a,  they  think  fit.  But  they  must  allow  no  officer  to  enter 
on  his  duties  until  he  has  given  satisfactory  security. 

(8)  They  shall  submit  to  the  shareholders  at  the  annual  meeting 
a  full  statement  of  the  affairs  and  condition  of  the  bank  and  also  such 
special  statement  as  may  be  called  for  in  any  by-law  duly  passed  by  the 
shareholders  either  in  annual  meeting  or  at  a  meeting  called  for  the 

(9)  They  shall  declare  dividends  half-yearly  or  quarterly  out  of 
the  profits  of  the  bank.  But  such  dividends  shall  not  be  such  as  to 
impair  the  paid-up  capital.  If  any  such  dividend  is  declared  the  direct- 
ors who  concur  therein  shall  be  jointly  and  severally  liable  therefor. 

(10)  If  any  part  of  the  capital  is  lost,  the  directors  shall  cause  the 
same  to  be  made  good  by  the  shareholders. 


1 


,g4  BANKING    AND    COMMERCE. 

(II)  They  shall  not  decUre  anjr  dividend  beyond  eight  per  cent 
per  .nnum  unlrti  the  rc«l  or  roerve  fund  amounts  to  «t  least  thirty 
per  cent,  of  the  paid-up  capital. 
Clao..,   Heiatino   to   th«   Imu.   and   BroEMPTioM   or   Notes   Fon 

CiaCOI-ATION. 

(I)  The  bank  may  issue  notes  payable  on  demand  to  an  amount 
not  exceeding  its  paid-up  capital.  .        ,       .  ,i  .j  _„f„ 

(S)  No  note  shall  be  o{  lesser  amount  than  five  doUars-and  notes 
in  excess  shall  be  for  -.omc  multiple  of  five  dollar.. 

(g)  All  lac*  note,  thall  coKiUMe  a  PHErxaENTiAi,  iiEN  on  M  the 
melt  of  the  bank  in  the  enni  of  tn»olcenej|.  

(4)  The  payme.n  of  such  notes  is  further  secured  by  a  specW 
Eedemption  Fund,  to  which  all  banks  shall  contribute  P"  "'«  *»  «?• 
lount  of  their  average  circulation  year  by  year.  The  .a>d  f ""*  to  ta 
held  by  the  Government  under  the  name  of  "Bank  Circulation  Redemp- 
Uon  Fund,"  and  to  be  used  for  no  other  purpose  than  the  redempfon  of 
the  notes  of  any  insolvent  bank.  „      .j  u. 

On  the  amount  contributed  by  each  bank,  interest  to  be  •Uowed  by 
the  Government.  The  total  amount  to  be  contributed  by  each  bank  to 
said  fund  shall  be  five  per  cent,  on  its  average  n«»l«  '»»■  "  P»^ 
^.ts  are  required  to  be  made  from  the  fund,  they  shaU  be  m^  pro 
„,.  from  the  amount  of  each  existing  bank.  Banks  to  make  good  the 
deficiency  so  caused,  but  only  by  payments  not  exceeding  one  per  cent. 

""'rsrin  case  of  insolvency  the  notes  of  a  suspended  bank  shaU 
bear  interest  at  the  rate  of  five  per  cent,  per  annum,  until  not.ce  has 
been  given  bv  the  Government  of  its  readiness  to  redeem  them. 

(«)  No  bank  ShaU  pledge  or  hypothecate  it.  note,  for  a  loan,  and 
no  loan  so  m«le  shall  be  recoverable  from  the  asjet.  of  the  bank. 

If  the  total  circulation  at  any  time  exceed,  the  capital  of  the  bank, 
the  bank  .hall  incur  the  foUowing  penaltie.,  vis.:  If  'h^"-;•  ^  ""»  ""d 
$1000  the  penalty  .hall  be  the  amount  of  the  excess;  .f  over  SIOOO  and 
Tover  $20,000,  the  penalty  to  be  *1000;  if  over  $20,000  and  not  over 
$100,000,  a  penally  of  $10,000:  if  the  amount  of  «>««««  is  over 
$10c;000  and  not  over  $200,000,  a  penalty  of  Sf-OOO,  and  if  the  amouft 
of  such  excess  i.  over  *MO,000,  a  penalty  of  $100,000. 

"~;jTh..e  peraltle..  and  the  Utter  on.  <»P«"'«>'.  »'»  ■"'';*  ";j.™h.''b.°ni'. 
.coaimel  with  the  .uhjeot  "  h.ln,  u,,r,..on.Wy  '""■•«'"'  IJ^J  '„;'," 
.r-Cnaaa  ar.  '""'"^'J"^' V^y"' « '".5  ^S.lr'  ^nr.'".™ u°u;»U.T«i 

r  n/^.rrr™''/,  z^lx  ^.^  w.,h  -n..rou.  h„„eh«  ™.r^r 
:ir.;::.»rrr.hrp"7.rr:.fhr;3;f.'r^2^r^ 

r£":=r,:^^".rrhr,rr"=^r."t-^j^Lr' 


BANKING    ACT   OF    CANADA. 


*9S 


At  the  rcTiiion  of  the  bank  charten  whieh  came  into  force  in  1 901 
u  additional  aafegiiard  wai  inipoied  by  placing  the  whole  jupervialon 
of  the  manufacture,  diilributlon  and  iisue  of  circulating  notea  of  the 
banki  under  the  .upenislon  of  the  Banker.'  AMOcialion,  upon  whom 
wa.  also  placed  the  rciponsibilitj-  of  leeing  that  the  deatniction  of  can- 
celled notea  was  carried  out  in  a  proper  manner. 

The  Association  had  previously  been  consliluled  an  incorporated  body 
largely  with  a  view  to  the  exercise  of  these  functions.  The  banks  are 
thereby,  as  a  body,  constituted  guardians  of  their  mutual  interests;  than 
which  nothing  can  be  more  reasonable,  seeing  that  by  the  operation  of 
fte  bank  note  redemptiVn  fund  they  are  made  ultimately  liable  for  each 
others'  issues. 

PoWias  WITH   RlGAHD  TO  THE   LlNDINO  OF  Mo.VEV  AND  OTHCa  Ub»  OF 

THi  Funds  or  tiif;  Bank,  Also  with  KEOAao 
TO  Deposits  and  Reserves. 
(1)  The  bank  may  lend  money  on  bills  of  eiehange,  bonds,  stocka, 
debentures  and  standing  timber;  may  discount  bills,  and  carry  on  such 
business  as  generally  appertains  to  banking.  But  it  shall  not  lend  money 
on  real  estate  or  other  immovable  property,  or  ships.  Yet  it  may  Uke 
and  hold  any  of  these  as  additional  security  for  debts  already  con- 
tracted. 

(a)  But  it  shall  not  hold  real  property  more  than  seven  years 
without  p:rmission  of  the  Treasury  Board,  and  then  only  for  five  years 
longer.  *  ' 

(3)  The  hank  shall  only  lend  money  on  merchandise  when  the  same 
is  pledged  to  it  at  the  lime  the  loan  is  made,  and  then  only  on  a  ware- 
house receipt,  pledge,  or  bill  of  lading,  which  warehouse  receipt  or 
pledge  in  certain  specified  cases  may  be  given  by  the  owners  of  the 
goods. 

It  shaU  have  the  power  to  sell  the  goods  after  notice.  Elaborate 
provisions  are  contained  in  the  Act  respecting  these  powers  to  loan  on 
lnercha.idise,  all  being  designed  to  safeguard  the  rights  of  ordinary 
creditors.  ' 

(4)  There  are  also  provisions  respecting  property  which  the  bank 
may  acquire,  whether  movable  or  immovable,  also  as  to  its  power  of 
sale  and  realisation. 

(5)  Anv  pe'son  making  a  false  statement  is  to  the  goods  pledged 
by  a  wnrehous.  receipt  or  bill  of  lading,  or  who  removes  any  goods 
pledged  to  a  bank  without  its  consent,  or  withholds  them  when  demanded, 
is  liable  to  imprisonment  for  a  term  not  exceeding  two  years. 

(6)  For  all  advances  made  upon  warehouse  receipts  or  bills  of  lad- 
ing the  bank  shall  hold  a  preferenUal  lien  upon  the  goods  prior  to  the 
claim  of  a  non-paid  vendor,  if  such  there  be.  And  if  such  vendor  have 
a  lien  upon  the  goods  at  the  time  the  advance  was  made,  preference  of 
the  bank  will  sHU  hold  good,  unless  it  had  knowledse  of  the  prior  lien. 


■r.  !• 

:  1! 


i|. 


tge  BANKING   AND   COMMERCE. 

(7)  The  bank  th.ll  not  be  liable  to  penalty  or  forfeiture  for  Oiaryl 
bnt  it  ihall  not  be  able  to  recover  by  action  at  law  more  than  leven  per 
eent.  per  annum. 

Dbpositi. 

(8)  The  bank  can  receive  deposit,  from  any  peraon  and  repay  them 
to  the  aame  peraonj  iubjeet,  however,  to  any  law  of  any  of  the  provineea 
of  Canada  impoiing  dUability  on  certain  clawea  of  per«)M.  Pro- 
vided always  that  from  iuch  peraon.  depoalts  may  be  received  and  re- 
naid  up  to  five  hundred  dollars. 

The  bank  rflall  not  be  bound  to  see  to  the  .leeuUon  of  any  trust, 
whether  expressed  or  implied,  to  which  any  deposit  may  be  subject,  or 
to  the  application  of  the  money  paid  on  such  deposit. 

If  a  deposit  is  made  in  the  name  of  two  person,  the  receipt  of  one 
shall  be  a  sufficient  discharge;  or,  if  in  the  name  of  more  than  two,  the 
receipt  of  the  majority.  j    .,        , 

Money  of  a  deceased  depositor  can  only  be  drawn  by  production  of  a 
notarial  copy  of  will,  or  copy  of  probate  or  letters  of  administration  by 
a  competent  court. 

RiaiinTis. 

The  bank  shall  always  hold,  as  part  of  its  reserve"  of  cash  on  hand, 
not  less  than  fort)  per  cent,  thereof  in  the  legal-tender  note,  of  the 
Dominion;  and  the  Finance  Mini.ter  shall  always  deliver  such  note,  in 
eichange  for  .peeie  at  the  oiBces  where  legal-tender  notes  ««  «^«"'- 
able,  which  places,  inlQOI,  were  Montreal,  Toronto,  Halifal,  Ottawa,  St. 
John,  N.  B.,  Winnipeg,  Charlottetown  and  Victoria,  B.  C. 

■       CLiUSIS  RiLATINO  TO  STATEMENTS  TO  THE  GOVERNMENT. 

These  return.,  which  are  sent  monthly,  and  are  summariied  and 
published  in  the  "Canada  Gaiette,"  were  formerly  much  ampler  than 
they  were  subsequently  made,  and  in  their  present  form  are  .o  detailed 
and  elaborate  that  none  but  enpert.  can  properly  appreciate  them. 

The  points  upon  which  information  is  desirable  are  of  interest,  partly 
to  the  geueral  public,  partly  to  bank  stockholders  and  investors,  and 
partly  to  other  bankers  and  the  Government. 

The  public  are  interested  in  knowing  how  the  bunks  as  a  whole  are 
progressing,  a.  to  the  total  amount  of  their  circulation,  deposit, 
and  discounts.  All  these  are  indices  of  the  growth  or  otherwise  of  the 
business  and  wealth  of  the  country  at  large.  But  the  public  have  litUe 
or  no  interest  in  knowing  the  amount  of  overdue  bills,  or  what  amount 
of  the  banks'  funds  are  invested  in  bonds  and  slocks,  or  in  what  partic- 
ular form  its  reserve  ol  cash  is  maintained. 

But  bank  stockholders  and  other  banks  are  interested  in  knowing 
what  cash  reserves  or  available  resources  the  individual  banks  are  keeping, 
also  what  amount  of  its  funds  each  bank  employs  from  time  to  time  in 

so  But  IBfre  Is  no  pro-lslon  as  to  the  toUl  amoum  ot  sucll  iMene. 


BANKING   ACT   OF   CANADA.  ggj 

diwounting  biUi  >nd  trade  .dv.ncn,  .nd  how  much  In  itock  exchange 
'oani  and  defaentuni,  .].o  how  much  re>I  eitate  .  b>nk  hw  acquired  and 
whether  any  bank  ii  borrowing  from  another  bank. 

In  fact  bankeri  and  itoekholden  are  all  'ntereiled  in  leeing  whether 
any  tadli-ldual  b«.k  i.  .t«!tr!,.ng  out  it.  bu.ine..  beyond  .af,  boundi, 
and  thereby  jeopardizing  it.  ;  ition.  A.  for  the  Government,  it.  main 
coneen,  i.  to  .oe  whether  tl..  bank',  circulation  i.  within  the  author 
fted  limit,  and  whether  in  the  ca.h  rcMrve  there  i.  held  the  preMribed 
proportion  of  legal-lender  note..  prcKirinea 

It  i.  alio  of  inlere.t  that  it  .hould  be  generally  known  what  are  the 
total  advance,  to  director.,  inn.mueh  a.  in.tance.  have  occurred  in  bank, 
fag  where  the  po,iti„n  ha.  been  .eriou.ly  jeop.rdi.ed  by  .uch  advance, 
being  allowed  an  undue  amount. 

The  Monthly  Return,  as  now  prescribed  by  law,  i«  ai  follows: 

Capital  authorised   g 

Capital   subscribed    

Capital  paid  up 

Amount  of  Rest [ 

Rate  per  cent,  of  last  dividend ,      ..].., 

LiabilitieM. 

(1)  Xotes  in  circulation «^ 

(2)  Balance   due   to   Dominion  Govt ]"" 

(3)  Balance  due  to  Provincial  Govts *. .  * 

(4)  Deposits  by  the  pul'ic  in  Canada  pay- 

able on   demand 

(5)  Deposits   in    Canada    payable   after   n(^ 

tice    

(6)  Deposits  not  in   Canada 

(7)  Loans  and  rediscounts  from  other  banks 

(8)  Deposits    by    other    banks    in    Canada, 

including  balances   due 

(9)  Due    to    agencies    of    the    bank,    or    to 

other  banks  in  the  United  Kingdom 

(10)  Due  to  agencies  or  banks  elsewhere. 

(n)  Other   liabilities    '.'.'.'.'..'. 

Total    liabilities    

Asaett. 

(1)   Spcric    ^ 

(9)   Dominion  notes   

(3)  Deposit  to  secure  circulation 

(4)  Notes  and  ch-eks  of  other  banks 

(5)  Loans    to    other    banks    secured,  includ- 

ing hills  rediseounted 


I 


*9» 


BANKING   AND   COMMEBCE. 

(6)  Doe  from  othrr  Ivinki  l»  Cinada. .....     

m  D«  from  »g«cl«  of  the  tajA  or  other 

"'         bonk,  in  Ih.  United  Kingdom. ....      

(8)  B.l.n«.  doe  from  .genele.  of  the  ton^ 
^  '         or  other  b.nl«  or  .genele.  eUewhete 

Lnln  C.n.d.  o,  the  UnUed  King- 

dom    . 

(9)  Dominion    and    Provinelol    Government 

•ecoritiet    ••• ". 

(10)  C»n«dl.n     municip.1     «™f "  .  ™ 

BrilUh.  foreign  or  colonial  pnbUe  ie- 

eoritie.  other  than  Canadian^. . .  .^.      

(„)  Bailway   and   other   bond.,   debeutnre.       

and    .lock. ••• ", 

(13)  Call    and    .hort    loan,    on    .loek.    and 

bonds  in  Canada. ....••••••■•••  •• 

(,SJ  Call  and  .hort  loan.  eUewhere  than  in     

Canada    • 

(■141  Corrent  loan,  in  Canada •■••■■ 

J     Current  loan,  el.ewhere  than  In  Canada.     ....      • 

(16)  Loan,  to  the  Government  of  Canada 

(17)  Loan,  to  Provincial  Government. 

^;^^ r^atflJh;; tha;;h.nkpre^;..  : 

(20)  Mortgage,  on  real  r.tate  .old  by  the     

bank    

(21)  Bank  premise.   ■,'■.■",'  ilj 

(SS)  Other  ..sets,  not  already  meliided _•■■■  . 

t 

Total    asset. ^ 

Aggregate  amount  of  loan,  to  director,  and 

*         (inn.  of  which  they  are  partners. ...  » 

Average  I^ount  of   specie  held  during  the     

Average"  mini  of  Dominion  note,  held  dor-      

inff  the  month * 

Greatest  amount  of  notes  in  circulation  at  any 

time  during  the  month 

This  return,  it  will  he  seen,  is  in  X^^'^^^  ■!::^^tt  *:i?::tfgh- 
bankers  -'••^Trf  "c^o^n  »"  mrin^st  to  them.  But  it  i, 
bor.  are  do.ng.    This,  °\'^7"' '     -  _,ii„„  might  not  be  .ommar.sed 

r^.trfr::^'i^~i-£cs.nrr; 


BANKING  ACT  OK  CANADA.  fW 

Hon  that  then  rcturni  m  effrctual  for  that  purpoK. 
Clai'ih  Relating  to  Inioltinct 

notp:;xlLVpTr:Lt;\-,-r"" "  '•^-"' " 

,„f"'  ■■'■''•'"""".f"  »•■«'  P"'°d  co„.titot«  th.  bank  l„«,Iv«t  and 
tT^rf  L  .1  '°''"'"'%°'  "•  '•''"'♦.■':  which  charter,  however,  i.  Tn- 
tmued  for  the  pnrpoie  of  winding  up  the  Unk. 

Banl,'  ".'  ''°''""'  P"^"'"'  """  if  "V  bank  .uapend.   payment    the 

«Mn'„ll  .  ,  ..^  ■"■  ''"'■''  '°  °"'"'  "•  "«  «"'  P''«.  «'  needful 
arrangemcn  for  the  p.yn,enf  of  the  note,  of  the  bank,  ^,.„  ..,en  for 
protecting   the   right,   and    intere,t.   of   the   creditor,   generally       ThI 

:^z  t  rii-e^  Br;:." """"""" "  •-'-'"'^^  *°  --  -p  '^^  '»^* 

If.  after  .u.penaion  for  ninety  day.,  no  proceedinm  are  taken  .oh 
^nk     Stockholder,  who  have  Iran.ferred  their  .ha™  within  .ixty  dayt 

PlNALTIEf. 

The  act  impose,  ,„ndry  ponaltie,  for  violation  of  ita  provision. :"  • 
(1)   lor  neglectmg  to  pay  call,   when   due,  ten  per  cent  •-  or  the 
director,  may  declare  such  share,  to  be  forfeited. 

a.  .Innlarty  ll.bl,  to  abM,  Tl  the  hUrlf  ,        ^f.         ''"'   ""■""   ""    ""••".r 
action*  of  a  totally  dltferent  *.iin™«.o^  i,   '"'''"-'"*"•   t^overin^  a  crcat   number  of 

tompllo..^  pi^vi-loB,  rrtali  M  .  ,  ,  Mnaltle,    a    lar«    „„„b.r    or 

.^...  o.  ».„,„„..  ho,;;r.„'.'  ra.Thi%."4s:L:'r„";^.:,'zu:".?/hv°! 


;f* 


soo 


BANKING   AND  COMMEBCE. 


(9)  For  hulding  !»•  tlian  forty  prr  cent,  of  caih  retcrvci  In  Do- 
minion notrt,  five  hundml  dolUrt  prr  day. 

(fl)  For  an  over-iitue  of  circulating  notci.  (These  pcnaltica  have 
already  been  referred  to.) 

(4)  For  violating  any  of  the  pro.isionf  of  the  Act  relating  to  the 
leeurltirs  on  which  money  can  be  lent,  or  to  real  property  acquired,  or 
mortgngei  thereon,  for  each  violation  a  penalty  of  five  hundred  dollars. 

(.t)  For  not  tending  monthly  returns  in  proper  time,  fifty  dollars 
per  day. 

(6)  For  not  sending  any  special  returns  required  by  the  Minister 
of  Finance,  five  hundred  dollars  per  day. 

(7)  For  not  sending  li^t  of  shareholders  annually  at  the  time  ap- 
pointed, fifty  dollars  per  day. 

(8)  For  not  sending  list  of  unpaid  dividends,  unpaid  balances  and 
unpaid  drafts,  fifty  dollars  per  day. 

The  two  clauses  which  follow  impose  penalties  upon  directors  or 
officers  of  the  bank. 

(9)  For  declaring  any  dividend  which  impairs  the  paid-up  cap- 
ital of  the  bank;  all  directors  who  knowingly  concur  therein  shall  be 
jointly  and  severally  liable  therefor  as  a  debt  due  to  the  bank. 

(10)  For  giving  a  fraudulent  or  unfair  preference  to  a  creditor, 
or  for  wilfully  making  any  false  return  or  statement  of  the  affairs  of 
the  bank,  the  parties  who  have  prepared  or  signed  such  statement  shall 
be  liable  to  imprisonment  for  a  term  not  exceeding  five  years,  and  shall 


pothec*  of  varloiuly  described  artlcl«a  of  merchandlav,  rtipecllna  the  Interpre- 
tation of  which  lawyer*  and  Judfee  have  held  and  are  likely  to  co-itlnue  to  hold 
different  opinions. 

It  la  to  be  noted  that  the  actions  hedsed  round  by  tuuh  ex  :raordlnary  pro- 
vlaoi  and  penaltlea  are  such  aa  muat  ooeur  repeatedly  In  any  rlnile  day'a  bual- 
neaa,  when  the  movement  of  the  crops  la  actually  Kolnv  on.  Tet  the  penalty  1» 
for  each  separate  act,  which.  It  has  Iwen  contended,  meana  the  payment  of  eucb 
check.  The  whole  aplrit  of  theae  clausea  would  Imply  that  the  Undine  of  money 
for  the  purchase  of  agricultural  produce  la  a  very  auaplcloua  bUBiaeea.  fraucht 
with  danger  to  the  community,  and  to  be  Jealously  watched  by  the  Oovernment. 
It  may  be  aald,  and  probably  haa  been  aald,  and  will  be  again,  that  a  banker  can 
eaally  keep  himself  aafa  by  not  lending  money  under  these  clauaes;  In  fact,  he  need 
not  lend  money  to  move  the  crops  at  all  unless  he  pleases.  Thia  Is  easy  to  say; 
but  In  so  saying  It  la  forgotten  that  the  warehousing  clausea  of  the  Bank  Act 
were  devlaed  by  Parliament  for  the  very  purpose  of  facilitating  theae  operations 
of  commerce  which,  more  than  any  others,  promote  the  prosperity  of  the  coun- 
try; viz..  the  marketing,  transporting,  and  exporting  of  Ita  crops  and  produc- 
tions. The  "moving  of  the  crops"  aa  It  Is  technically  termed.  Including  the 
productlor.  of  the  forest,  sef.  and  mine.  Is  universally  recognised  aa  the  foun* 
datlon  of  t...  the  other  Industries  of  Canada. 

Now,  if  the  clauses  of  the  Bank  Act  that  were  expressly  framed  to  enable 
the  banks  to  promote  this  are  so  hedged  about  by  provlaoa  and  penalties,  that 
bankers  cannot  act  upon  them  without  great  risk  of  being  heavily  lined,  it  is 
lAvlous  that  both  clauses  and  penalties  need  reconsideration.  There  Is  the  more 
reason  for  the  latter  in  the  fact  that  all  the  dubious  clauses  relate  to  the  se- 
curity for  loans  of  money,  a  violation  of  which  carries  Ita  own  penalty  In  ths 
forfeiture  of  the  security. 

Thia  forfeiture  can  be  enforced  by  ordinary  process  of  law,  and  rendera  ar-r 
special  penalty  unneceaaary. 


BANKING   ACT  OK   CANADA.  ggi 

|«J.plbk  for  .„  a.«.,„  .u.u.n,d  b,  .„,  p.«„  ..  „^„^ 

„.,J'"  '*?"'  '^"*"'"  "'  •"  "PP""'''.  to  .  b.nk  in  iU  corporate  «- 
tlM.ppllMblr  tooircnoM  by  othrr  ptrioin,  thin>  »'!»■■« 

fonrLd"d'dlV"'   '""  "  "■"'  '"""''"^""'  "«"'•"  ••  -'^ 
(i)  For  Ming  tbc  im,  of  b.nk,  or  b.„king  comp.ny  (or  the  like 
corporate  »;ordi),  withoirt  ,„|hority  from  thii  Act    .  S„.  „f  .1. 

cxc^lgTwetyToLr  "°""'"'°"  "'  """'"""  """  '  ■-"""r  »". 
Such  i»  the  Banking  Art  of  C.nodo,  which,  though  not  without  H. 

mittod  to  do,  or  to  be  prohibited  from  doing  P"""""  'o  l>e  per 

on  ;!r  .r,r:,::prr  rTiXTo  rx-riX"-; 
r-^;:::i-;Set^-':,{-^£f^^tu' 
':":icZt''T:'i  i  "'^"'•' ''-  •"^"rri^rd^rrr.rn; 


■X 

,1: 


i 


ciiAPTEii  xxxn. 

raiAHOIAL  PAMlOi  AHD  UVULUOm  III  KHOiAMD  AHD 

TBI  urnno  nATH. 

P^KIC  OF   USi   m   ENOLA!ID-BttlI."0>   OF    1  »3«-3i)-C.l.l.  OF    U»7- 

F.n'kc.al  Cou,.f..  of  .H37-PAN.C  OF  im  .N  E»aLAN..-Ur 

■aX>  TO  ■■  LlARKID, 

FEW  event!  .«  .1  the  Mini   tin,,    more  dl.l.irblnj,  to  rr.d  of  .nd 
yet    nx.re   In.lroetive   than    the   nnrrntive    ot    the   ponle.   «nd   re- 

vuUlon.  .hleh  during  the  h.t  eentory  IroobM  the  fln,meM  world. 
They  ore  worthy  of  enr.ful  .tody  for  two  r.o«,n.;  «"  ' ''  °"' 
hand  to  re.tr.in  the  .rdent  and  «ngulne-lempered  from  proceeding  far 
in  a  eoor,-  which  will  inevitably  end  in  dliaater;  and  on  the  other  to 
prevent  the  n.en  who  are  pe..in,i.tie.lly  Inclined  from  "'"'■J""*  >-"^°« 
ctood,  of  trooble  for  .ueh  .ymptom.  of  di.turhanee  ..  u.he  n  a  «nan 
eiol  .torm.  It  i.  by  carefully  noting  the.e  event,  of  the  part  'h»»  "  "•» 
of  (inancial  re.,H.n;ibility  can  .teer  a  .«fe  coi,r«.  m  the  preKnt  and  avoid 
cither  raihncaa  or  pessimiini.  ^  y    t  -i..  „«,. 

In  Ihi.  chapter  a  brief  .ummnry  will  be  given  of  k-vcm'  of  .'e  more 
important  of  the«  rcver«.,  con.ideratlon  of  which  ...1  well  "-P'.-  j1™»' 
even  now.  For  if  we  go  back  a.  far  ..  the  year  18i5,  we  .hall  «nd  ooi- 
X.  in  a  condition  of  thing,  remarkably  like  wha  ha.  P'^-ded  in 
Ut«  time.:  and  the  warning  Icon,  of  thi.  panic  will  be  found  pcrtl- 

"™*  nVawinT^mcw'h^t  on  the  aeeonnt  given  o^'h' — " /"f™*  "^ 
occo  "panving  the,e  panic,  by  authoritie.  like  Gilbert  and  McLeod  and 
to  .ome  Extent  from  my  own  knowledge,  we  will  begin  with  a  notable 
panic  in  England. 

Thi  Panic  of  183.5  i.v  Enolasd. 

«ler  .everal  vear.  of  proaperity,  clearly  indicated  by  the  nmplilode 
of  thV.toek  of  billion  in  the  Bank  of  England,  the  Government  de- 
termined  upon  the  red«tion  of  the  inte,e,l  upon  nearly  »  <!"«''"  °1,  ,! 
„a™on,l  debl.  Thi,  va.t  o,.eration  had  a  very  oon..derable  .nHuence  ^ 
c^irtailins,  the  income,  of  many  person,  who  could  .11  afford  t  and  pre- 
pared them  to  look  out  for  more  proMablc  investment..  Ju.t  at  thi. 
S  the  long  contr.l  between  Spain  and  her  South  American  Colonic. 
K^How  finolfv  terminated  in  favor  of  the  Colonic..  The  reeogn.lton 
of  the  independence  of  the  South  American  State,  and  Mexico  apparently 
opened  ou'^boundle.,  field  for  the  consumption  of  Briti.h  -""f'^:;; 
°nd  a  spirit  of  .peculation  rapidly  rose,  influenced  by  vision,  of  emintle. 
w",lth  lo  b.  ertraeted  from  gold  and  silver  mines.  Immense  Kheme. 
were  formed  for  working  the.e  mines  with  Briti.h  capiUl.  ,     ,  ,. 

BesTe,  thi.,  the  long  .truggle  for  independence  had  in.pired  the 


PANICS  IN  KNOLAND  AND  THE  UNITED  STATES.    9M 

arill^  pmple  with  •)rinp<lh]t  for  thr  Jiirrnile  rrpublin  polltk'.llj  con- 
•Merrd,  ind  wbtn  thty  wanted  to  Iwrrow  monry  to  lupport  their  credit, 
British  people  were  only  loo  eager  to  lend  It.  It  li  allraed  that  In  theic 
V.n  w.jr>  /H0,00O,OOO  of  Brillih  capital  waa  placed  in  Melieo  and 
South  America,  much  of  which  waa  loit.  The  tpeeulatlon  in  mines 
■peedll.T  d-veloped  into  ii  mania,  and  let  It  he  noted  that  thoae  were  all 
in  a   trar     Atlantic  country,   leading  to  immenu   eiporti,  the  grealtr 

'""ii'/  '«'''  ""  """  '*'''  '*"■•  '"  •"  ""■"■  •P«»l"<l'>ni  only  a 
imall  InilaUnent,  uldom  eiceeding  Ave  per  cent.,  wai  paid  at  Ant  m 
thai  a  very  modenle  rlur  in  the  price  of  the  .htroi  produced  a  large  profit 
on  the  lum  actually  invc.lcd.  All  the  gambling  pr.,pen.itlo.  of  human 
nature  were  therefore  urgid  Into  action,  and  erowdi  of  indivlduala  of 
etery  dcwripllon  haclened  to  venture  tone  portion  of  thilr  property  (by 
way  of  margin)  In  nchemri  of  which  icarcclr  anything  w/i>  known  eicept 
the  name  Aa  a  natural  coniequence  Ih,  price,  of  naa^  oiker  commodi- 
liei  donhltH  tnd  triplrd. 

Thia  it  a  nio«>  lignilicnnt  point,  for  It  li  a  fact  that  there  ii  never 
•o  much  buoyancy,  and  luch  mutual  congratulation,  at  in  the  period  be- 
fore the  hunting  of  financial  itorau. 

The  •peculatlve  fever  waa  at  its  height  in  the  Unl  months  of  1833 
But  the  enormous  almrption  of  capital  that  had  taken  place  had  made 
money  scarce  and  dear.  And  that  ominous  symptom,  the  stcadv  decline- 
in  the  bullion  In  the  Bank  of  England,  had  begun  to  be  apiiarent.  In 
January,  1884,  it  amounted  to  i:i  t,500,0()0.  In  July  to  ill], 800  000 
By  January.  18!!3,  it  had  fallen  to  f  9,300,000.  Yet  even  the  Bank  of 
England  Itself  failed  to  read  the  signs  of  the  times,  and  went  on  dis- 
countinu  Hs  oMial,  It  was  not  until  the  bullion  wa,  reduced  to  ilfi  ,500  000 
that  it  took  measures  to  stop  the  drain  by  uriailing  Its  discounts.  Biit  it 
was  too  late.  That  measure  ought  to  have  been  taken  six  months  earlier. 
As  it  was,  enormous  commitments  and  engagements,  made  in  the  lime 
of  inHalion,  had  to  be  carried  out.  The  drain,  therefore,  went  on  In 
July  the  Unk  had  only  X  1,1 70,000  of  bullion  wherewith  to  meet  all 
the  engagements  to  note-holders  and  deiiosltors.  This  was  reduced  to 
X3,1SO,000  in  October  and  to  .f  3,01 2,000  in  November.  Then  the  storm 
burst. 

Thfrc  con  be  no  wonder  that  a  panic  prevailed,  for  the  drain  had 
gone  on  until  there  was  nctually  less  than  .£1  ,,500,000  of  specie  left  in 
the  Bank.  A  few  days  more,  and  the  Bank  itself  must  have  suspended 
payments  in  specie.  Gold  would  then  have  gone  to  a  premium,  as  it  had 
done  during  the  wan  with  Napoleon,  and  a  univenal  dislocation  of  busi- 
ness and  general  insolvency  hove  ensued. 

The  one  marked  feature  of  this  crisis  was  the  large  number  of 
Banlwg  f.iilures  that  it  brought  .ibout.  First  came  the  stoppage  of  a 
great  bank  in  Plymnnlh.  Then  followed  a  greater  collopse  »<ill.  that 
of  Wcntworth  &  Co.  of  Yorkshire.  The  London  banking  house  of  Pole 
&  Co.  was  also  forced  to  succumb.  The  Bank  of  England  had  lent  them 
£300,000.  but  this  was  of  no  avail.  Pole  &  Co.  were  agents  of  no  less 
than  forty  country  banks,  and  their  foil  was  the  signal  for  a  general  nm 
upon  the  London  banks,  several  more  of  which  gave  way,  spreading  unl- 


301  BANKING    AND    COMMERCE. 

versal  consternation  amongst  the  country  banker,  .ixty-three  more  of 
,hich  ,„m,mbe<i.  Shortly  after  the  ces.at.on  of  the  panic  gold  begM. 
,0  flow  in  fron.  abroad,  and  confidence  to  be  restored  r.nvernnent 

The   panic   ceased   when   it   became    evident  that  the   Goyrnment 
^n,M  stand  bv  the  Bank  of  England,  and  the  Bank  by  the  country. 

Bnt  "he  e>"n.s  which  had  taken  place  had  important  consequence, 
one  of  Ihich  was  the  stopping  of  all  further  issues  »/  °";-I»™d  "ote 
bv  the  B.-.nfc  of  England;  and  another  the  beginning  of  the  agitation  tor 
the  akililion  of  its  banking  monopoly,  and  the  establishment  of  Joint- 
Sock  Brinks      The  first  measure  was  founded  upon  a  delusion   a,  might 
hive  be"n  s  en  had  men  east  their  eyes  towards  Scotland      There  had 
tin  no  yrand  .evulsion  there,  nor  any  circumstancs  W-ng  up  to 
it      Yet  one-pound  notes  were  the  universal  medium  of  issue,  as  tliey 
have  been  eveVsinee.     And  although  there  have  been  two  failures  of  im 
mense  m.;;itude  amongst  Scotch  hanks  since  '^en,    n  ne.ther  case  w 
the  iisaster  attributable  to  the  note  issues.     In  both  cases,  in  the  spnere 
*W  one  pound  notes  are  most  in  evidence  as  f^'^'^^J^:i"^^'- 
that  is,  in  the  country  branches,  the  business  of  both  banks  was  in 

'"ems,  however,  to  have  entirely  forgotten  this  in  subsequent  years. 

Panic  or  1838-39. 

The  r»vulsion  of  1838-39  may  be  passed  by  briefly,  as  it  presented 
feati,Tes%n  no  essentia,  re,p«tdifferi.g^^^^^ 

""!?  '"Z  :^len°  Tfliie  peric^  le  d^'g  i^tj^tlfe  p««ng  of  ™i«io.. 
ifT^utT^^^X'ol.  "-'/or™',  yeildiSg  no  remuneration  for  many 

of  flooltng  o" :  ^^j  continuous  dram  of 

years.  It  was  P'«;*^*  as  ^Tsnlk  held  of  bullion  £9,790,000.  In 
gold.  In  December,  1838,  '>'^„""™^„'"i„  j„,^  ,„  £2,980,000,  and  in 
^'"■.;,ita^to  '^r/orl  Yef  ;  cirXly  L  credited  that  up  to 
^itTh^Banktrriking  advances  as  if  matter,  were  in  a  normal 

""-S- revulsion  however,  I  p...  ^^.^^r.^lr^trlT^l 
Is-r "i:?  ^alXd  thc^orlt^^^^^^^^^^^^^  of  our  own  time., 
and  therefore  carry  more  pregnant  le..on.. 

The  C«isi«  or  1817. 

Though  thi.  crl.i.  acted  'f^^'^ll^f  !,%']';  ^"c'l^d!™ 

«,ncerned,  «  ™  J"!  J™"^  ^i„„„,  rfict.  on  Canada.  Suflicient 
fp"&;tor  p';;^a::«on  hS'not  been  given.    It  wa.  largely  owing 


PANICS  IN  ENGLAND  AND  THE  UNITED  STATES.    S03 

to  this  that  the  crisis  of  1847  was  so  severely  fell.  Montreal  was  pros- 
trate under  the  he..-,  [,;  ms  ipflicteil  on  her  prosperity.  Banks  made 
heavy  losses.  Th  Jank  of  :,.V,n'  ,  ,1  lost  all  its  resened  fund.  AU 
Canada  was  more  ...■  l.-.s  „ffcc(eH.  '„t  it  was  in  the  eoinmercial  capital 
that  closed  warehv  y.n  :.nd  quut  T.l.arves  testified  for  vears  how  severe 
Dad  been  the  blow. 

The  panic  of  18*7  came  „!;;.,  I  in  England  in  this  wise.  During  the 
yean  18t.5-46,  a  perfect  fever  of  Railwav  construction  had  been  de- 
veloped all  over  Great  Britain,  and  the  amount  of  monev  drawn  for  this 
purpose  from  the  floating  funds  of  banks  and  the  community  gradually 
mounted  up  to  enormous  sums.  Railwavs  were  supposed  to  hove  within 
tlieinselves  a  certain  guarantee  of  inexhaustible  future  wealth,  and  Parlia- 
ment was  besieged  with  applications  for  new  schemes.  Prices  of  shares 
were  continually  on  Ihe  rise,  and  for  a  time  evervthing  was  on  the 
ascendant.  Mercantile  business  became  inflated,  fo'r  evervbody  found 
them.selves  rapidly  getting  rich.  And  many  bankers  were  "carried  away 
with  the  excitement  and  fostered  it  by  free  discounting.  A  high  style  of 
Uving  was  entered  upon  by  many  people,  and  establishments  created; 
a  perfect  type  of  which  was  found  in  the  career  of  George  Hudson,  the 
great  railway  promrter  and  operator  of  those  times.  A  few  vears  be- 
fore he  had  been  pursuing  a  quiet  business  as  a  draper  in  the  city  of 
York,  and  living  in  a  style  corresponding  to  the  position  of  a  shopkeeper. 
But  in  1816  we  find  him  a  railway  magnate,  occupying  a  splendid  man- 
sion overlooking  Hyde  Park  in  London,  and  entertaining  the  nobility  of 
the  land.  All  this  was  based  upon  the  rise  in  railway  shares  and  was 
kept  afloat  by  mosses  of  bills  incautiously  discounted  by  bankers  and 
discount  houses.  All  commercial  transactions  become  infected  with  un- 
soundness and  an  extraordinary  number  of  persons  became  entangled  in 
obligations  of  which  there  was  no  prospect  of  their  ever  working  free. 

These  were  the  conditions  precedent  to  the  great  collapse;  and  I 
know  they  are  correctly  described,  for  I  was  in  England  at  the  time 
and  an  eye-witness  of  them  all. 

The  first  Sign  of  the  break-up  occurred  in  the  grain  trade.  In  the 
month  of  August,  1817,  great  houses  in  this  line  of  business  began  to  fail. 
The  first  had  liabilities  of  £300,000.  Other  firms  followed;  some  failing 
for  £S00,000,  some  for  £400,000.  One  failure  resulted  in  another, 
and  by  the  end  of  the  third  week  the  failures  amounted  to  £3,020,000. 
The  circle  of  disaster  now  widened  and  spread  through  all  branches  of 
business,  until  the  total  amount  within  a  few  months  reached  the  enor- 
mous sum  of  £15,000,000,  a  sum  fully  equivalent  to  twice  as  much  at 
the  piesent  day. 

So  far  with  regard  to  merchants.  Then  came  the  turn  of  the 
bill  discounters  and  the  banks.  In  was  in  September  that  the  first 
note  was  struck  by  the  failure  of  a  large  firm  of  bill  discounters  in 
London.  Early  in  October  the  Royal  Bank  of  Liverpool  succumbed, 
amidst  tremendous  excitement.  The  failure  of  the  Royal  Bank  was  fol- 
lowed by  the  stoppage  of  the  North  and  South  Wales  Bank.  (This  Bank 
resumed  business,  and  is  in  high  credit  now.)  The  Liverpool  Banking 
Company  and  the  Union  Bank  of  Newcastle  then  followed.  Heavy  runs 
to 


I: 


,06  BANKING    AND    COMMERCE. 

.1.0  look  pl.ce  on  other  b.i.k,,  le.dtag  to  f.ilure.  in  M.ncherter  Mid  In 

*'  The  IflT'of  1ngl.nd  h.d  rendered  ...i.t.nce  during  .hi,  perUjd 
of  .S,  noTwi.h.Undfng  the  f.et  .h.t  it,  .upply  "' t"'"""  ^Jjf^  ^, 
iting  drained  off.  But  the  time  w..  eoming  when  .t  w«  -•'«""y/°' 
tti  gre.t  Bank  to  look  .fter  it,elf.  By  the  operation  of  the  *'">'""■ 
.large  p.rt  of  the  gold  owned  by  the  B.nk  w..  loeked  »P  '"  *!  '■'" 
decent.  -.  -eeurUy  for  it,  note,,  and  w..  -«"'y  »-:"^''  ? /"^.'^^ 
el-im,  of  depo,itor,  .nd  diMounting  cu.ton.er,.  O'^"""'?  '^%™'„ 
h.d  rbund.nt  re«,urcc,  in  bullion  for  all  banking  purpo.e,,  1-'. / "  7« 
A.n  .  vear  back  it,  bullion  had  been  steadily  decrea.ing.  By  the  ena 
of  ?.^ober  it  hSd  been  reduced  to  ,uch  an  amount  a,  to  render  .t  .mpo.- 

h^l::^^^;^  rc=u^!:tnXr;f^ 

"?  crlLtance.  compelled  the  Government  t" ,  ■>»f  »*  '^„',  ^'^  »"a^ 
.How  note,  to  be  issued  (they  were  legal  tender,  let  .t  be  borne  in  mind, 

'^''"CnThfreLtnt  intervened,  the  p.nic  p.„ed  away  ..  h^_ 
that  of  1825  for  the  ..me  rcas..,..  Bu.ine„  gr.duJly  re,umed  .t,  ord - 
nary  CO,  r.e.  But  one  of  the  most  important  eon«quence,  of  he  revul- 
sion w^  to  di„ip»te  the  idea  th.t  the  act  of  1811  could  be  «hed  "n  to 
Slon  ™  "O  1  ,   J     b,„|,i„.  interest  of  the  country,  with  few 

L«%nrb.d  ,h^.«d"thf  deTusivelde.,  and  -ducjed  their  operation. 

rSSnt'cIn  p'evt^iontinted  vioJion  of  ,ound  b.nking  rule,  from 
'"'■•'Buf  oth:J're\u*rn'."were  to  happen  before  a  right  unaer.t.nding 
w.,  ."ived  .1,  with  reg.rd  to  bank  issue.;  .nd  nothmg  i.  more  r^ 
TrkZ  .h.^  .he  misconception  that  perv.ded  even  the  mercantile  .nd 
b.nking  world  of  London  with  reg.rd  to  thi,  matter. 

Tkr  Revulsion  of  1857. 
The  event,  of  thi,  terrible  financial  revulsion  came  very  oloK  home 
to  u.  on  thlsside  of  the  AtUntic,  for,  as  some  now  living  «.n  "■nern^r 
tt  Z^pt  l«.e  .  lom.do  over  the  United  St.tes,  and  passed  .,  .  de.dly 

'•"netXg'"En';C  tTcrh.d',.'rf' he.vy  war  expenditure  in 
llespecting  r.  n        ■  development  of  extravagant  living 

IhcX  it     i  ^-/I'Tpirit'  of  huoy.ney  pervaded  the  cjimmunity^ 
attending  K.«g-  F  ^^,  ^^^^„  ,„j  „^^  pe,  cent.,  . 

>,-  b  ,.t  for  EngW.     An  eiormon,  .mount  of  .ceommod.tion 


PANICS  IN  ENGLAND  AND  THE  UNITED  STATES.     »07 

had  gon,  down  from  £l7,roo,000  to  ,«10,300,000j  and  there  were  .ign. 
of  the  time,  wh.ch  sage  financiers  were  earefully  noting  from  day  to  day 
and  from  week  to  week.  The  bullion  in  the  Bank  was  only  of  moderate 
amoun  at  best  Dnring  the  period  of  extravagant  living,  there  had  been 
heavy  importahon.  of  Eastern  luxuries  as  well  as  an  immense  increase  in 
ordinary  .mportation,  from  thenee.  These  caused  an  abnormal  aceumula- 
t.on  of  debt  to  that  quarter,  which  could  only  be  satisfied  by  shipment,  of 
•pecc.  Accordingly,  a  Million  pound,  sterling  was  taken  from  the  re- 
serve of  the  Bank  for  shipment  to  the  East.  This  was  the  b,.gi„„ing  of 
the  d,u,nuti„n  „  the  Bank's  stock  of  banking  specie  which  went  on  untU 
it  waa  nearly  all  exhausted. 

Unite^Sta^s"  "°"'  '"''  '°"'"  °'  disturbance,  however,  was  in  the 

l.,„t"7  '"'T'  ^°°^  ""7"''  ""''  i"™e"«e  railroad  development, 
largely  financed  on  money  borrowed  from  abroad,  but  partly  on  di.- 

ZZ1,  °"'  *f."ril'"  °'  «"-»ga»t  expenditure.  £t  ij  Follow- 
ind  Cntl'Th  ^  ^f  '■•"■e«t  >vhich  prevailed  over  the  United  State. 
Ohio  °  '""'  °'  '  *'"  'member,  came  from 

On  August  2Jth  the  f.nio  Life  and  Trust  Company  with  deposit,  to 
he  amount  of  «^00,000  stopped  payment.  This  creaied  a  panfc  which 
rapidly  spread  throughout  the  Union.  Discount  rose  to  eighteen  and 
wenty-four  per  cent.    The  extraordinary  numl,er  of  130  bank,  in  Penn- 

Ortooer  l.tth  a  general  run  took  pl,ce  on  the  New  York  banks.    Eighteen 

maTntSV  '■'"?••  ""^  """•  "''"""d'.  »>«  "f  sixty-three,  only  one 
maintained  payment  in  specie. 

n.,^.^  P"'™' "alanehe  of  mercantile  failures  resulted  from  these  stop- 
page, and  other  cause,  and  for  months  together  several  columns  of  the 

rupt  Nothing  like  ,t  had  been  known  before;  nothing  like  it  has  trans- 
pired since.  We  used  to  read  these  list,  in  Canada  with  very  seriou. 
ourTxTrt;  fV  ?"'  "^V'"=  °"  """""'"y  Treaty  was  in  fLe,  and 
^n  IWcH  V.  *  T  ""t?"J"  'T'^  '•'S'  ■"•»"  "f  •""»  »°  l»=  drawn 
matter  of  daily  anxiety  to  Canadian  exporters  and  their  bankers 

The  depre.s,on  continued  for  two  or  three  years,  during  which  there 
was  the  severest  weeding  out  of  weak  firms  and  weak  banks  that  had  ever 
been  known;  accompanied  also  by  an  exerci,e  of  personal  and  domestic 
economy  ,o  general  as  to  produce  a  heavy  diminution  of  import,,  and  a 
restoration  of  «>und  methods  of  giving  and  taking  credit. 

marisrfls"^';',!"  ^'"*''"'''  ""  ""™  "'  •'""  '""'  •«  •"-"^  ""- 
(1)     The  event,  in  the  United  States  first  reacted  upon  Liverpool 

«^.  xf  V  !"'  %"T  ''""'  ""^  '■'""■'^  ™""""^  ^"h  American 
firms  The  We.  em  Bank  of  Scotland  failed,  naturally  enough,  for  it 
also  °;^^"^'"''«lously  mismanaged.     The  Borough  Bank  of  Liverpool 

The  City  of  Glasgow  Bank  .upended  temporarily,  but  was  able  to 


308 


BA\KIN"G    AND    COMMERCE. 


reiume;  the  most  remtrkable  Ihinfi;  about  which  is  that  its  Directors  were 
blind  to  this  sharp  lesson,  and  twenty  years  afterwards  perpetrated  the 
most  astounding  series  of  follies  and  frauds  ever  bean,  of  in  the  history 
of  banking. 

(3)  London  was  first  disturbed  by  the  tremendous  depreciation  in 
American  securities  of  nil  kinds,  but  particularly  Railways.  These  had 
been  carrying  on  an  cKtrnvagant  style  of  management,  for  years;  and 
p&yi::g  dividends. — practicnlly, — out  of  capital.  Some  eighty  millions 
sterling  of  American  r-jilrond  stock  was  held  in  England,  and  the  effect 
of  depreciation  was  far-reaching. 

(3)  In  October  failures  began  to  i.icreasc  in  the  country.  Alarm 
spread  in  .ill  directions  when  it  was  announced  that  the  great  mercantile 
house  of  Dennistoun  and  Co.  of  London  bad  succumbed,  followed  a  few 
days  after  by  the  failurt  (for  the  second  time)  of  one  of  the  largest  dis- 
counting houses  of  London,  Sanderson  &  Co. 

AH  this  time  the  bullion  in  the  banking  department  of  the  Bank  of 
England  was  draining  off",  and  it  went  down  until  on  November  12  the 
amount  of  gold  held  by  the  banking  department  was  only  £358,000.  The 
whole  of  the  remaindt'"  was  locked  up  in  the  issue  department  and  held 
for  the  notes.  Yet,  bo  ding  only  this  sum  of  less  than  XtOO.OOO  against 
the  maps  of  its  deposits,  the  Bank  was  struggling  on  from  hour  to  hour. 
The  London  banks  alone,  at  that  date,  had  balances  in  the  Bank  of  Eng- 
land of  more  than  five  millions,  and  could  have  closed  it  np  at  once  bad 
they  pleased.  Of  course,  it  would  have  been  madness  to  do  it.  But  tbey 
themselves  might  have  been  compelled  any  day  by  the  claims  of  their 
country  correspondents  to  draw  out  the  whole  of  the  gold  in  the  vaults 
of  the  Bank.""  It  is  well  known  that  this  panic  was  stopped,  by  the 
si'.spension  nf  the  Act  of  1844:  the  second  demonstration  of  the  unwisdom 
of  the  idea  that  the  Act  would  bring  about  n  wiser  course  of  financing  and 
prevent  panics  altogether. 

-  Turning  now  to  Canada,  we  are  confronted  with  a  condition  and 
development  of  a  high  degree  of  instructive  interest.  (The  descriptioa 
which  follows  is  from  my  own  knowledge.)  During  1855  and  1856,  the 
country  had  enjoyed  a  period  of  remarkable  development,  in  two  ways: 
the  harvest  of  both  years  had  been  singularly  abundant;  and  the  price, 
owing  to  the  Crimean  War,  phenomenally  high:  wheat  having  been  worth 
from  a  dollar  and  a  half  to  two  dollars  a  bushel.  The  total  value  of  each 
of  those  harvests  wa»  equal  to  three  or  four  average  ones  The  con- 
sequence was  a  phenomenal  expenditure  upon  land,  in  the  shape  of  new 
clearings,  buildings,  barns  and  improvements.  This  was  accompanied  by 
a  heavy  rise  in  the  nominal  value  of  lamia,  both  cleared  and  wild.  Nat- 
urally following  npon  this,  was  an  eitrao -dinary  impetus  to  the  trade  of 
the  towns,  and  a  heivy  rise  in  the  value  of  to>"n,  city  ond  village  property. 
Along  with  this,  came  the  immense  expenditures  connected  with  the 
bnilding  of  the  Crand  Trunk  Railway.  Kcv.  r  had  such  an  onlpoaring  of 
money  been  kn^jwn  in  the  quiet  country  towns  and  cities  of  Western  Can- 

82  One  ',t  the  most  noticeable  things  In  the  menaaement  of  the  Bank  of  Eng- 
land at  Ihl.t  time  Is  on  apparent  obllvlou.ne.s  to  the  claim,  of  acpo.ltori.  If 
any  ,u..lk.n  aro.e.  It  .a.  stay.  ibis-Have  y,™  .n^ngh  n>onoy  to  go  or  die- 
counting?  never— Have  you  enough  to  pay  demands  of  deposltorsT 


PAV.CS  ,.V  EXO,...VD  ..X„  THK  VSn,0  STATES.    30. 

Inl'i  "11  with  tl„  i,  "of  an  Z  ;  '„""'  ""'  '"'"  "™".  •■"■d  buiS 
town  of  five  ll,u,„„„d,  ,.  dtv  I?  fiftv  ,1  °..'°""  "^  "="  "">"'and;  the 
■n.p.t,„  „„,  ^i,.,,  ,„  ,„        "■;»,;"•'   f»»">"g  New  York,     A  „„,il„ 

every  cross-road,  in  H,e  eountrv  of'.'  ■„.  K  1"  '"'■'^-for  "l  »lraosl 
"."de  for  „  f„t„re  t„™  „r  c  t^  „  T„'' '.'""^  i",'"'  »""''.'»  h"-!  been 
l«nd,  ,h,re  these  f„t„re  eitic  were  to^^.  7  ,"i*'"  ■'  '"'"  ""-^  '■'''i  of 
decornted  with  ,,),,„,  „„d  pfctir;,  otlZt'  "'T''""  """»  being 
rr<-""«k«tores„„d..ffiees_r,//„'''3^  Halls,   Bank,,  ^J 

had  heen  „,r,-ej.ed  for  streets  and  ol,  ,17,^  ''"r;'"  '"  """'■  "'"»=  »"■» 
f«bul„„s.  The  farmer  was  te„„ted  to  e,rihe"T  '^  """^  ""'  "-P'y  * 
«t  »  pnee  that  yielded  him  a  little  forle  Bt  ,7''°''  '"/"""^  'l^'''"'"'" 
he  farm  would  gel  a  thousand  lo  s  ont^'f  if  "  »P'-<-"l«tor  on  dividing 
."g  to  sell  for  a  hundred  dollar,  Theslsale^  T  f""'''  ""=  ""'  »"'- 
over  ten  years  of  limr ;  mortgages  "nd  rrl'  """'"  °"  ""^'^  'P'^""! 

represent  the  debt.     B;il  the  puTe Lsel'lf  TT;  "S'?  ^'""^  ""'"  *« 
they  sold  them  again;  a  fresh  cron  of         .  '"''  ""'  "»"'  'bem; 

being  the  reMdt  at  lUgher«g!.esZil   „,*"«''  ""''  P'°-ni«"rv  note, 
"The  Simple  hundred  'a         tsC".oT"  '"?'  'i'"  "'»"""='»  "•• 
anee,  and  promissory  note,  havj  el",stered  rol?"/".".  '"''  ''"'^''  ""'^y- 
eonvey      i„g  j,,  ^^_.^__^  than  1^1?     1     '  'M ""  '"■"  '''"t  of 

•■Carry  this  over  a  wide  area   .n^l     .  ?      "'""^  "'  "»  '»■")• 
in  the  Western  Province  of  rSa'^n^e;     °  f™^  '"''"'  "'^  «"■'  tillage 
with  the  same  inft.tion,  °f  an "norinl"    ":'  '7  °'  f"  '•"'i""'  i"feetfd 
manner  of  extravagane;, ;  of  p'on™ he^e  r/,1 '""'i'"*  ""  "^'"'  «  »" 
'O  rieh  a,  to  make  preparation  for  retfrin^  t     p"  ',""7'"^  themselves 

tion,^^:^";;^^^:,:-  ri^i-^  -=  -^  eonsiderah.  por- 

enormous  importations  ha'd' trbe^^-d  f  "Z'  v"  """^  '""^  '°  "P°"'  •"' 
grew  suspicious.  Lots  ceased  to  be  i„  demand  ''  ^""'Z  "'«'"•  ^'"^' 
could  hardly  realize  it.  Jlen  c  un/w»h  ,  '  """'"''  """»'  «"d  ■»" 
what  might- transpire  in  mereantin     ,  r:"'!  '°  t  '■""  "■'"  "•>  ™»" 

"'Veri  i':t,t  'rt' »'  9'Xnerth:  sir"-"  "> 

11  of  i/;i,T«°  .SS'   flo^'^rfritTh""""*''  "■'  '■""  -"  »'  ■»'7. 

•nd  more  numerous.     Men  that  haTfouZ'  ■"""  '"'i"'"  '""^''"'^  ™«     " 
X-r  ..d  ,S,S  were  -PeUe'^^^le^a^ -^^f"-.^-^ 


j,0  BANKING   ANn   COMMERCE. 

ini  for  TMM  «  load  of  obligatloni.  There  were,  indeed,  iiMtancei  where 
f"unre  ultlLtely  overtook  men  »  late  ..;863  and  1864,  the  .eed.  of 
which  were  sown  in  the  revoliion  of  1837.  ,.,.„,i  .-J 

"If  a  man  had  been  away  from  the  country  during  the  interval  and 
returned  he  could  not  fail  to  be  .truck  with  an  extraordinary  change. 
Numcroua  shop,  are  el„,ed.  Number,  of  empty  h->u.e.  are  to  be  ««^ 
New.paper.  are  full  of  notice,  of  .ale.  of  land,  for  laxe..  If  ^J^ 
a  friend  of  former  Tear.,  whom  he  knew  a.  a  .oceef.ful  'Pf''l'»°'jJ™ 
Wn.  to  «r.,  ».  before  of  land,  and  lof.  he  find,  it  to  be  a  taboorf 
"Sect     Hi.  old  friend  ha.  gone  through  terrible  experience..    He  ha. 

„i  and" d;  and  ha,  found  that  while  liabilitle.  are  tang.ble 

"alitfe..  ...et.  in  the  .hape  of  in.talment.  on  land  p«rch..e.,  were  a 

""'"''■■Si."mort"if  he  foreclosed,  left  him  only  the  owner  of  thon- 
.and.  of  acre.  ?f  bu.h  and  .wamp;  un.aleable,  yet  liable  to  be  Uxed.  He 
had  brought  number,  of  .nit.,  but  got  practically  nothing.  »"'  "J'" 
had  ..ued  *™;  and  taken  hi.  hou.e,  hi.  furniture,  hi.  bank  .tock,  and  aU 
^e  had  in  he  world.  Worse  than  thi.,  he  had  involved  hi.  fnend.  and 
«l.tve.  in  the  ..me  misfortune,  and  had  alienated,  »;  .■n•d^«"'■»^»  »' 
[hem  all  They  had  endorsed  hi.  paper,  had  been  .ued  in  their  turn,  had 
vaWy  endeavored  to  put  off  the  evil  day,  but  finally  had  to  ocumb  to 
the  aU-devouring  «  fa  of  the  .heriff,  and  the  hammer  of  the  auctioneer 

This  papWc  description  of  the  rcvul.ion  of  1857,  .n  Canada  .^ 
the  inflation  that  precedrf  it,  ha.  been  quoted  for  the  reawn  that  bo* 
ore  W^cT  What  took  place  in  Ontario  took  place  in  Ohm  and  Illmo..." 
And  what  took  place  in  ,836  to  I860,  ha.  been  "P"''"' -"'"f,- »« 
ta  the  developments  of  .ub.eq«ent  year..  Every  feature  »'  >»"  '°  '"^^ 
wa.  repealed  in  the  great  boom  that  swept  over  Manitoba,  m  1881  and  tt. 
™n.™e"  .ub.«iuerl  ve.r.;  and  on  a  more  limited  scale  .everal  time. 
"n«'n  omfof^our  principal  cities.  The  only  *f-nce  between  the.e 
and  1857,  wa.  that  the  area  of  disturbance  wa.  confined  to  one  c.ty  or 
di.trict. 

Panic  of  1866  in  Enoi.and. 

It  miaht  be  .opposed  that  after  .uch  .evere  experience,  a  whole 
„ncr"tioufa  least,  wo'^ld  pas.  before  ano-her  .uch  period  could  tranapire 
ySrSghted  men,  within  a  year  or  two  after  were  anticipating  that 

-SI.  .a.  --.---'  ;~"r„r,o"r  arr."  srs^r.™ 
iru'e-cS  ^^^-a  ?:^r  „riirrrr.  r.,:;;i: 
r:L!?'sro:ir  £S.^~  =";^er«r  j:=: 

jou  have  .hi.  r>o4  w«rehou.«  tor  notiuni.  Tl...  ij  *">""•, 

ttmujl    "bu.  I^«..  «  much  »""  »"•  "'•''  '»"'*  '"  »»"'»«' 


PANICS  JN  ENGLAND  AND  THE  UNITED  STATES.    iH 

Ih.  horde  of  iprculator.  who  hoT«  .bout  financial  centre,  would  And 
•ome  nsnna  or  other  of  bringing  about  another  era  of  inflation.  But  it 
7"  ^°*,  "!'"'  '»««-«•*  «"■"  «l>e.v  found  their  opportunity  The  law  of 
Um.ted  liabilltj  had  ju.t  been  p.,.,d  (a  high./£nc«cial  law  when  „.ed 
«o«  fJr  th'ei  "»  J"  °'"""°"  '"""""'y  '"'^'"•'•d  opportunitie. 
Srf  .„H  IL,.^  *  """.  "P'P/"''-"-  L'p  to  March,  isfiirtwo  hun- 
dred  and  .ixty-threc  companie.  had  been  formed  with  a  nominal  capital 
of  .eyentjr-eight  mdhon.  .lerling.  In  conntelion  with  the.e,  va.t  sum. 
V  r       r."  ",'  '*°°'  r"*  diKo-nted  by  Unancial  houae.  like  OTcrend 

TI,  -.l,  '"/"■"■•  'f®''  I""  ""  °'  ^''"™"'  "«•  ""'.v  "•ree  per  cent. 
Then  the  great  operation,  began  which  culminated  in  the  paniVof  the 
followmg  year.  The  Finance  and  DLcounl  Companie,  did  an  enonnou. 
bu.inc,,  ,„  l«in.  and  bdl.,  finding  thu.  the  mean,  for  the  promotion 
of  cred.1  entcrpri«,  by  which  fabulou.  .um.  of  money  were  locked  up, 
and  much  of  it  Iwt.  *^ 

•n  J'''',  ""?.  *■?!'"'"«  """P'^  "f  «>=  operation,  then  indulged  in: 
IBe  London  Credit  Company  ha.  a  capital  of  a  million  and  deno.it.  of 
two  mJIion..  With  .uch  mean,  at  command,  it  uke.  five  lhou.and 
iliare.  m  the  Financial  Asraciation  of  Pari.,  (which  A.wciation  ha. 
operation,  going  on  ir.  Egypt,  Turkey,  and  Hu..ia) ;  it  loans  a  large  .um 
to  a  company  to  build  dock,  at  Mar.eille.;  undertake,  the  con.lruclion  of 
a  railway  on  the  Danube,  and  finally  ha.  to  take  the  railway  itaelf  in 
payment;  put.  £800,000  into  the  building  of  a  public  hall  in  Milan; 
undertake,  work,  of  drainage  in  Belgium;  contracU  for  the  improre- 
ment  of  dock,  on  the  Thame.;  •ub.cribe.  for  1,000  .harea  in  the  Bank 
of  China  and  Japan;  and  take,  half  a  million  of  a  loan  to  the  Sultan  of 
Turkey.  Another  company  of  a  .imilar  kind  goe.  more  into  Central  and 
South  American  .ecuritie.,  and  ha.  money  invcted  in  Hondura.,  Guate- 
mala, Vene.uela,  ChUi,  and  Braiil.  Another  fancie.  Shipping  i  id 
Steamship  line..  And  here  it  wa.  that  the  great  house  of  Overend, 
Gumey  &  Co.  met  with  the  Io..e.  that  ruined  them.  By  forty  year." 
patient  iHeiition  to  bu.ine.«,  a  capital  of  manv  million,  had  been 'accu- 
mulated by  the  hou.e.  They  were  Quaker,  of  the  very  crrme  dt  la  crime 
of  the  financial  world,  and  their  credit  was  unlimited.  Their  bu.ineH 
wa.  OS  large  a.  that  of  all  the  banks  of  Canada  put  together.  Yet  in 
two  or  three  yean,  under  the  enterprising  management  of  younger  mem- 
bers of  the  house,  their  immense  fortune  was  dissipated  in  worthlen 
loan.."  There  never  wa.  such  a  sensation  as  that  which  shook  the 
Unancial  world  on  the  announcement  of  the  failure  of  Overend  &  Co., 
Limited.  Their  liabilitle.  were  over  £10,000,000.  The  ramification,  of 
their  busincM  extended  all  over  the  world,  and  the  day  the  failure  wa. 
made  known  will  long  be  remembered  in  London  as  Black  Friday.  After 
this,  bank  after  bank,  and  company  aft'r  company,  came  toppling  down. 
A  tremendous  drain  took  place  on  the  bullion  of  the  Bank  of  England, 
and  had  it  continued  for  two  day.  longer  the  great  eatablishment  mu.t 
have  doMd  it.  doors.     Numbers -of  financial  corporation.,  however,  did 

U  Th«  Mme  condlUon  of  things  transpired  twenty  years  afterwards  with  ths 
house  o(  Barlnf.  It  had  Uken  half  a  century  to  build  the  drm  up.  It  only  took 
three  years  for  the  younier  veneration  to  pull  It  down. 


lit  BANKING   AND  COMMERCE. 

.upend  ...d  w«e  wonnd  up.     And  .|t9in  |h,  f.mou.  Bank  Act  had  to 
br  Ksp^nded  lo  prevent  the  Bank  of  England  from  .lopping  payment. 
Such  are  the  principal  p.inlc.  and  revnUion.  that  have  .wept  over 
England,  the  United  State,  and  Canada,  during  the  la.t  century. 

T.1.H0N.  TO  Be  LsARNcn. 

And  now,  it  may  be  ..ked,  what  i.  the  moral  of  it  all?  ^'J'fJ'' 
i.  it  for  the  prnent  generation  to  dwell  upon  the  record  of  'he  follie. 
„f  the  pa.t,  and  their  punishment?  There  arc  var.ou.  rea.on.:  but  the 
principa'^i  one  i.,  that  what  h«,  happened  before  i,  undoubtedly  liable  to 
TapTn  ,g,in.  I.  i-  true  that  we  have  not  had  for  thWy  >-"  P«f' -^ 
.lupendouD  eata.lrophi«  over  „  wide  area  a,  lho.e  of  182.1  <•'  'J^"' but 
we  have  had  collap.c,  and  rever.e.  quite  a.  severe  m  a  more  limited 
rohere  The  Blark  Fridav  of  Wall  Street,  when  Jay  Cooke  &  Co. 
u.p™ded  wa.  quite  a.  .harp  a  eri.i.  a,  that  wWeh  fd^lowed  the  ™- 
pen,™n  of  Overeud  &  Co.,  in  Lombard  Street,  and  we  have  i<f,'^"f 
b"on.  of  the  same  kind  since:  confined,  however,  to  a  limited  area, 
fhere  ha,  been  no  general  break-down  of  credit.  "*-•'"«"«=-•',';! 
countrv,  and  characterised  by  -he  failure,  .fnumerou.  bank,  and  rt. 
'^11  of  numerous  mercantile  hon,e,  of  the  highest  ''""■-J'^'  "■«  '''•'7 
;?  .uch  a  cunvul,iou  a,  that  of  1837  i,  quite  within  the  bound,  of  po...- 
Wlitv'     Therefore  the   old  adage,  "Forewarned   i.   Forearmed,     ha,   a 

""'Tt  Zf  if  a"t!:'^'  "forewarned?"  No  banker  can  afford  to  be 
nervonfand  di.turbed  at  every  change  that  doud,  "-e  «nancl.  hori.on 
The  true  eour.e  i.  to  learn  from  the  event,  of  the  p«,t  and,  with  =ach  a 
chart  oT^.t  disa,te-,  before  him,  a.  is  contained  in  thi,  <*»P'",  every 
Snker  (and  everv  merchant,  too)  may  ask  himjelf  the  q""'-";  J'  '« 
™"di!ion  of  thing,  now  prevailing  like  A"'  "h''h  """"l.'f 'j' g J? 
peat  break-down  of  1857,  on  this  side  of  the  Atla  ..or  that  of  1847 
frUiS  on  the  other  side?  I.  there  a  great  and  univer,.l  'P"''  -f  ,p«^^ 
?.t.on  abroad,  of  a  constantly  increasing  volume,  all  based  on  banking 
credTt?  I,  there  a  general  prevalence  of  extravagant  Imng  (mortly 
b,7ed  on  credit,  too)  so  general  as  to  lead  lo  unusual  importation,  of 
ru"urie"f™m  abroad?  I.  there  any  sign  that  va.t  masse,  of  «ceomniod»- 
Uon  ™per  are  beinf  «l  afloat  and  di«ounted,  unconnected  wi  h  the 
ordin»y  eorr?nl,  of  business?  Are  the  resources  of  the  banks  steadily 
flmnga^d  continuously  keeping  below  a  safe  position?  These  que,- 
[I'n,  L  the  pertinent  one.  in  the  esc i  and  on  the  answer  to  them  will 
depend  the  action  that  every  individual  banker  may  take. 

But  it  i,  fortunate  that  the  action  of  individual  bankers  will  not  be 
the  determining  factor  in  the  ease  In  this  generation,  there  has  been 
rremarkTble  development  of  the  principle  of  ^..o«a<io»,  and  the  action 
^f  one  hank  upon  aLther,  both  in  the  United  .States  and  Canada  The 
,1  one  ™""-  »^  ,  .  ^  York  is  a  great  conservative  power;  no  i" 
ftATf  he  imetan' Brn7er,'  Associati'on  for  the  ^hf  country ,» 
S»  i.  that  "f  the  Banker.'  A.,ociation.of  Canada.  We "-digeaUd  id^^^^^ 
of  the  true  method,  of  banking  are  much  more  prevalent  than  fonnerly. 
°^  But  »  mi^t  always  be  with  banker,  a,  a  b«ly  to  re.ist  any  extensive 
development  of  inflation  that  may  threaten  to  .weep  over  the  country. 


PANICS  IN  ENGLAND  AND  THE  UNITED  STATES,    sis 
They  hold  the  por.t-,lri„g..     x„  „,„„  h„  ,„j 

ren"dr„en:t..'.''Mr'""" " '-""' "-"" '- "  ^"^"^ri^^^i 

bued  upon  l,om,».,rf  „„„,.     Here  i>  where  the  banker'i  nower  h..  i  . 
He  ho  d.  the  key  r,f  the  portion.      The  final  ]„„„  „,e  with  hta:  ,od  i 

ire  ^i  h?  """'^  •"  ""■"  ""*  «,'''P""'>  "Pon  banker,  alone  whet^^r  there 
ore  In  he  any  ninre  panie,  and  revulnioni. 

h,™-^*"".'  fu''  "'"■  "?;"■■'  '°  '•""''"».  ""d  the  banking  interest  But 
tummg  to  the  great  public  who  are  apt  ,o  be  earried  away  in  the,e  time, 
of  exeite„,ent.  here  ean  be  no  doubt  that  the  event,  recorded  tnth" 
chapter  are  well  worthy  of  con.ideralion  by  them  Thev  are  full  „f 
Important  eon.ideration,  especially  for  a  ,v„„Vr  g^eJaZ.  o7 /.".L. 
Toll  ";j  "A'  Y,"""^  "P  '"  ""'  P«?"""'  """•nee  of  the  X 
*o.<en.a,  to  be  neh  especially  by  mean,  of  operation,  foreign  to  a  man"! 
own  buM„e„,  th-,  bring,  on  the  fever  which  deprive,  men  of'^heir  ,en,e. 
and  ends  m  revulsion  and  ruin.  »en»c., 

And  again  referring  to  the  philosophy  of  the  wise  man  of  Jude. 
I'n'l'  '  .  i  '";"«''''=  P™"'  "■•'  !»"«■  To  labor  in  any  one  of  the 
employment,  developed  in  Ihtse  advancing  limes,  so  as  to  be  of  servce 
0  the  community    ,s  the  true  vocation  of  „,an  upon  earth.     Such  1.1^° 

h.T  ?h, A  .Tf"  "  °"'t  *"""  "/  ''""'y'  "  "  -""'"Uv  the  ease 
that  there  is  satisfaction  in  the  spending  of  it,  and  a  good  chance  to 
conserve  it  safely  to  the  end,  and  bequeath  it  ti  those  tharcom'  after 


il 


THE  AUTHOR'S  EXPERIENCES 
IN  FIFTY  YEARS  OF  BANKING 
LIFE  IN  ENGLAND  AND  CANADA 


Whh  SiMffMd  BmUa>  Cowpiny.  IM  to  IM.    Whh  B«ik  of  Toronto  u 

■ccouataM  «mI  — igr  UM  lo  Hit.    G«Mral  ftbnaavr  of 

tlw  MMchaati  Ihiak  of  Canada.  W7  to  HO. 


EXrEHlENCM  or  HAMKIh'J  l.Tfc  )N  BNMLA.ND 

tsr«...j,,,,„,    ,v,„    ll,,xK,.,„     r„M-    I,...  .     .       ,,,„    (•,„„,. 
yrtii.Mi.t    II.  ,!■;.,   ,,,11    T«.....    H;,.  ....      •..  r,i.  »T. 

-T,..!<.i.,      r„    ir,     n    (>r.M  ■       «,•  .■ 

■.    'tiMt 

11    vV  INii   «(i,T        1„.    .h..„  ,rBMj.-tsi(«.,v.>,M„.;,    I  ..  .rltlm.m    il 

M.  t.      ,■,:,,  i.lM,,..   ,.    »9>    |.-o„|..il'  ,(  ll-nkin  .li....ldk  i„T..    ..,  .1,,.., 

.1,  :if.-     I  ■■„•,  r..l.  Ihfr,  r.ir-  .  ,  l,,„k.iir  ..It,.  ,•  ,.,  \  ..rk.lii'r..  I  .  \     ,.,!. 

»:   I'..    ■>!!•■   pf  lillr.n.  b.  .f,;.-  d.,i>   inj.  ,it.,r,,l   r.y  ,!,.r,l,  „-.   .-hiph   i   I,.m„.i 

ii:j»,ir  I,.  „.ri,-  ,iiii«,.hii>  «,.a  t'.Mi.iii.iv  ,„.t.:  i  „ii,„„.,i  u,,  ,..    ,- 
iv..„i,  „,„■.   Ti,r  i,,„u  „„.,  ,,„„,,  „,.,^,.  ,  .„,_,,,_,  ,,  „^^ ^  n..„,„i,»T„ 

IU.,-u-l,.  „,■„  tl.,    .S1,..|I,M  lUnUnf  .„.„,,„„     ,„  ,„.l„m ,,,;„„  ;„„„ 

tl,r.«-p„„.„.;  |i„.  Iw.1  »  ,...„„„„„,,,    .„    ,t,.,    ,,,i,,..„„r-ill.,„.,,r,„,„l. 
III.'  i-li.i.ru.nn  .if  fhr  b...,r<l  - «  .,    ,,,1    -  ...  ,.    l„,|.  |„,,.l.  ,M  ,„.„„, 

"""''■  ""■"  '■■  """i"'  ■»  ! <«••' --         •    '1  ..n»rt  i,.  li...  h,«,..v  ...J 

|.i.». !...■>   ..f  hnnk.ii*.   «»,.,   I,«l   I    ;^.,i    .►,.,rn    i   tfnf.,     ..■•    n^l.T-' 

1  .ui.!-.!  ni.i. I,  di,.t..,w  I,,   i^.iii,  ,:  ,.,,,„„„,»„  .v„j    i.j^,„  ^^;,^ 

A.,i,-,,.,.,.    .„(,  ,,,„,    „,.    ,   1^,,^  „,   .|ir«U-rt     .a,,    -  „.,      ,f 

li;)jh  »t,indli.,i  ;.;  .!,r  l..«ri,  „v.i     ,,    i\„  ■„  .„  „.,i.,    t.-,  ,  ,  ,.    ,,,    ,■,       ,  .,  | 

■"  ''7'   '"•'"■•      '•'"    ""-^   I '■■ >  "'    »•'..*    -«   .  '.•,..„.,    .  ,,,,  ,.f 

.-..n.i.l.  rub,,.  u„.„„,.   „    „iii   (»■  „.,„  I„t..r    ,„.  ,(,,„..  ,|,.|,„g„i,|„,,]    ,„,, 
.".>■.  ......rl),    „.„,„„.„.  ,,„i  ,„^,|,  ;,.,,.;.^.,.,„,    ,„,,„„,„,,,  ,,,  ,,,„  ^.^  ___.  j^ 

"nt.c.  ..,, I,  l,„„.    A,.,„li,r  J!„aor  .„,  il,,-  h«,i  .„  ,!,,  ^.Miknn.,,  |i„. 
...  ,l»s,,,l.  Il„,|g,,,  ,„,,  s„„,,,  ,|„    „„».  ,„H,^   .„,„,,  ,rt„rr„ 

II..  l.„„k  ...  „,„.  „,  „,„  ,,H,„,  „fo„  .  ,,„,  .,,„|.  ,„„k.  ,,,„ ,j 

ill.T  til.-  t.i>..i.i|,..iv  „i  tbr  H.inl  of  Kiiali,,,;  « v. ,  ir.k-. 

T!,f  l„.,n,M  ..I  j„.,„  «„.k  ,,„„i,,„^,  ,.,   Kr,s!»„d  w„  ,1.,-.  „.  ,..    ,. 
I..,,,-.-      \,.,  ,.,„.h..„J,n«    K.„„..,  i„.„    ,„    .,„.,„„„,,-,,.    ,  ,, 

iMigHii,!.  whun-  '.,,r,j,<„,„  a„ri  iiutl^fc  ,,  „  „„._,..    ■. 
nio,l.l.  ;,,   .,„_,-  rrbt-.  '.■  m»lii.ii.,,.i      Tb,  .1.)h,-,w. 
b^k.  in  rngl«..ii  h»J  thfrrri,rr  «,     „.,i  ,(^,  ,. 
5iich  \vJv  „[  I  „,,,,,!  „„„,,j,„  ,,„,,,,  „,„,,, 

).r...<-i,f  ,t,y      N.nrly  .11   n.^'Mnkw,  ,.t   r.-s.......       .  j^  ,", 

..I    hnjl.„,l  ,:„lf.   „„,,  ,„  ,1,^  ,,,„„   „,-  ,^,^j_   j^^      ___         _     _    ^    ^^^ 

of  ,  m,,r,„,n,.  .,ubli,hm„,,  ..,.1 ^'^^i.%.^Z.'l!^ 


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y      :    ■■JcV  - 


>-=■ 


CHAPTER  I. 
EXPERIENOKS  07  BANKINa  LIFE  IN  KNOLAin). 

Inthoddction  into  Bankiho — Early   ExrimiKcia — Caik  CuiDiTt— 

MrTHOD   OP    DiALINO   WITH    TkADI    BiLLI TlOUBUtOHI    AcCODNTt 

— Thanifir   TO   Head  Office — Withdrawal  from   Bahrino  for 

A   TlHI. 

TJAVING  when  a  boy  shown  considerable  aptitude  for  arithmetical 
X  X  calculations,  it  was  decided  that  Banking  should  be  my  occupation 
in  life.  I  entered,  therefore,  a  banking  office  in  Yorkshire,  England, 
at  the  age  of  fifteen,  being  duly  indentured  by  deed,  in  which  I  bound 
myself  to  serve  diligently  and  faithfully  until  I  attained  the  age  of 
twenty-one.  The  bank  into  whose  seniee  I  entered,  at  their  Rotherham 
Branch,  was  the  Sheffield  Banking  Company,  an  institution  which  from 
the  beginning  has  had  a  continuance  of  able  and  successful  management 
The  chairman  of  the  board  was  a  gentleman  of  independent  means, 
much  given  to  studies  in  political  economy;  weU  versed  in  the  history  and 
principles  of  banking,  who  had  himself  wriHen  a  treatise  on  "Value;" 
a  subject  much  discussed  by  political  economists  from  Adam  Smith 
downwards. 

Associated  with  him  was  a  board  of  directors  composed  of  men  of 
high  standing  in  the  town,  most  of  them  in  active  business  in  the  steel 
or  iron  trades.  The  most  prominent  of  these  was  a  Quaker,  a  man  of 
considerable  means,  as  will  be  seen  later  on,  whose  distinguished  pres- 
ence, courtly  manners,  and  high  intelligence  impressed  all  who  came  in 
contact  with  him.  Another  director  was  the  head  of  the  well-known  firm 
of  Joseph  Rodgera  and  Sons,  the  great  cuUery  manufacturers. 

The  bank  was  one  of  the  earliest  of  the  joint-stock  banks  established 
after  the  monopoly  of  the  Bank  of  England  was  broken. 

The  business  of  joint-slock  banking  in  England  was  then  in  its  in- 
fancy. Not  much  could  be  learned  from  the  eiperience  of  the  Bank  of 
England,  whose  foundation  and  methods  were  unsuitable  to  be  taken  as 
models  by  anj  ordinary  institution.  The  directors  of  the  newly-formed 
banks  in  England  had  therefore  to  "feel  their  way"  somewhat;  for  no 
such  body  of  trained  managers  eiUted  as  are  to  be  found  there  at  the 
present  day.  Nearly  .11  the  hanking  of  England,  apart  from  the  Bank 
of  England  it«^lf,  was  in  the  hands  of  private  firms;  but  their  methods 
were  not  altogether  suitable  for  a  joint-stock  bank.  The  partners  in 
these  firms  gave  dally  attendance  at  the  bank,  a.  if  they  were  the  heads 
of  a  mercantile  establishment;  and  in  charge  of  the  office  was  simply  . 

Ill 


916  BANKING    AND    COMMERCE. 

head  clerk,  who  snt  with  the  rest  of  the  employees.  This  latter  feature, 
in  fact,  survived  after  entirely  different  conditions  were  established; 
and,  in  some  instances,  survives  to  this  day. 

But  this  head  clerk  had  as  a  rule  no  nianaginj?  powers  such  as  ap- 
pertain to  the  modern  manager.  One  of  the  partners  generally  signed 
the  name  of  the  Hrm  to  all  drafts,  bills,  letters,  and  documents,  and 
transacted  business  just  as  a  merchant  would  in  his  own  counting-house. 

But  no  board  of  directors  could  be  expected  to  carry  on  the  business 
of  a  joint-stock  bank  in  this  fashion.  There  was  necessity,  therefore, 
to  appoint  a  Manager  with  signing  powers,  and  also  much  of  the  dis- 
cretion which  a  managing  partner  would  exercise.  And  as  the  chief 
banks  of  Scotland  were  joint-stock  companies,  and,  unlike  the  Bank  of 
England,  were  transacting  the  cunnuercial  business  of  the  country,  it 
naturally  came  about  that  their  methods  were  adopted  by  this  new  style 
of  banks  in  England,  with  modifications  according  to  circumstances. 

The  joint-stock  banks  of  England,  therefore,  having  no  trained  body 
of  experts  to  draw  upon,  and  no  accumulated  stores  of  experience  for 
their  guidance,  had  each  of  them  to  carry  on  the  business  in  the  best  war 
they  could.  Their  success  or  failure,  therefore,  largely  depended  upon 
the  personnel  of  the  directors;  and  some  of  them  made  lamentable  fail- 
ures. Among  the  most  prominent  of  these  were  the  Bank  of  Manchester, 
the  Royal  Bank  of  Liverpool,  the  Yorkshire  District  Bank  and  the  West- 
ern Bank  of  England;  all  large  and  important  institutions  in  their  own 
locality,  and  all  of  whose  failures  were  attributable  to  violations  of  rules 
now  universally  established  in  banking,  but  which  were  then  only  be- 
ginning to  be  evolved  from  the  chaos  of  ideas  on  the  subject.  Others  of 
them,  being  in  the  hands  of  men  who  had  made  a  study  of  the  principles 
of  banking,  gradually  established  themselves  in  public  confidence,  grew 
with  the  growth  of  the  community  and  the  development  of  its  trade,  and 
are  strong  and  prosperous  institutions  to  this  day.  Of  this  latter  class 
the  Sheffield  Banking  Company  was  one.  But  it  is  only  right  to  say  that 
a  large  measure  of  this  success  has  been  due  to  the  singularly  able  man- 
agement of  a  man,  who,  entering  the  bank  in  a  subordinate  position, 
rapidly  rose  to  the  highest  place,  which  he  retained  until  his  death  lifty 
years  afterwards.  He  became  known  in  time  all  over  England  as  one  of 
the  prominent  bankers  of  the  day,  and  closed  his  career  of  exceptional 
success  only  a  few  months  before  these  pages  were  written. 

Such  was  the  bank  into  which  I  was  introduced  at  its  Rotherham 
Branch,  as  a  raw  youth  at  the  age  of  fifteen.  This  old  Yorkshire  town 
was  partly  manufacturing,  and  partly  agricultural.  With  its  suburbs  it 
bad  a  population  of  about  ten  thousand  (now  increased  to  fifty  thousand) 
and  was  the  seat  of  iron  and  steel  works,  rolling  mills  and  foundries,  all 
of  which  in  a  former  generation  had  belonged  to  one  great  firm,  whose 
business  had  been  developed  from  the  smallest  beginnings,  its  founder 


EXPERIENCES  OF  BANKING  LIFE  IN   ENGLAND.     317 

fccing  >  limplr  bladoniilh.  They  becnme  in  time,  bankers  u  well  ai 
manufacturers,  but  their  banking  business  was  ultimately  converted  into 
a  joint-stock  company  in  which  form  it  still  continues  as  one  of  the  most 
prosperous  institutions  in  the  North  of  England. 

The  hfada  of  the  great  firm  all  accumulated  fortunes,  gradually 
drew  out  of  the  business,  and  became  country  gentlemen  or  partners  in 
London  banks,  their  foundries  and  rolling  mills  passing  into  the  hands 
of  men,  si.me  of  whom  had  been  foremen  in  their  shops,  and  others  clerks 
in  their  offices.  These  men,  in  their  turn,  rose  to  n  higher  position,  and 
for  the  most  part  became  the  heads  of  flourishing  estiblishments. 

The  l-anking  business  of  these  concerns  was  divided  between  the  two 
banks  of  the  town,  of  which  ours  was  one;  and  during  the  eleven  years 
of  my  connection  with  the  bank,  not  one  of  our  manufacturing  custom- 
ers failed.  * 

The  town,  however,  had  a  fine  farming  district  round  about  it,  and 
many  wealthy  landowners  and  prosperous  farmers.  One  of  the  largest 
cattle  markets  in  the  North  of  Enjland  was  held  in  it  weekly.  It  had 
also  a  considerable  corn  and  cheese  trade,  as  wi  as  flour  mills,  malt- 
houses,  and  breweries. 

The  bank  therefore  had  a  miscellaneous  range  of  accounts,  and  dur- 
ing the  period  of  my  clerkship  there,  I  came  into  contact  with  men  of 
various  occupations,  .and  laid  the  foundation  of  experiences  which  sto<xl 
me  in  good  stead  in  suhsequent  years.  For  it  was  the  custom  in  those 
days  for  the  head,  of  firms  themselves  to  come  in  person  and  transact 
their  banking  business,  and  if  they  wanted  to  talk  to  the  manager,  they 
often  carried  on  conversation  at  the  counter.  Thus  I  had  the  opportu- 
nity of  hearing  a  good  deal  which  no  clerk  in  Canada  ever  hears.  Men 
whose  name,  and  wares  are  well  known  to  this  day  in  the  United  Slates 
and  Can,,da  regularly  came  to  the  counter  every  Saturday  (the  great 
business  day  of  the  week)  brought  their  bill,  for  discount,  and  carried 
away  bag,  ol  gold  and  silver  in  their  own  hands  for  the  purpose  of  pay- 
ing wages.  The  bank  was  a  sort  of  confidential  institution  in  those  day. 
and  they  would  never  entrust  their  busines.  with  it  to  clerks  and  mes- 
sengers. 

M  '','","'""''«"'""'  "">  P'ivate  room.    But  if  he  required  to  have  a  eon- 

S  «  u  ""u  °  "'"'°"'"'  ""^  ^"^  "»■"  <"  ■>»  »""  P"'"  ™  "t 
h.nd_  Seldom  however,  was  there  any  use  of  this  room  (apart  from 
board  days)  unless  when  an  account  was  working  irregularlv.  Then  the 
manager  Mould  desire  an  inteniew  with  a  customer  for  the  purpo«:  of 
conversing  with  liim.  On  the  result  of  this  conversation  woiJd  depend 
whether  his  checks  were  to  be  honored  or  not;  in  fact,  it  might  be, 
whether  he  was  to  continue  in  business  or  not.  (See  note  at  the  end  of 
.his  chapter.)'  Hence  the  riKim  came  to  he  known  a,  the  ".weating- 
room.       When  then  on  a  busy  Saturday  it  was  intimated  to  «>me  ci«- 


1  It  must  be  rememberM  that  no  bank  note,  were  l..„.a  below  l!v, 


potinda 


«18 


BANKING    AND    COMMERCE. 


tomer  nt  the  counter  that  the  mnnager  "would  like  to  lee  him  in  hi* 
room,"  we  clerks  knew  very  well  what  wag  awaiting  him. 


Advances  by  Cash  CitEDiTa. 

The  modua  operandi  of  the  business  wns  largely  founded  on  Scotch 
methods.  Every  customer  who  desired  regular  advances  applied  for  a 
cash  credit.  This,  if  granted,  was  worked  exactly  as  in  Scotland  by  over- 
draft on  current  account.  With  regard  to  these  credits,  three  fixed  rule* 
were  observed.  The  first,  that  they  should  not  exceed  in  amount  one- 
tentti  of  the  annual  turnover  of  the  account.  The  second,  that  they  should 
be  entirely  cleared  off  nt  least  once  in  ench  year.  The  third,  that  they 
should  be  (granted  exclusively  by  the  board,  and  on  proper  security.  The 
manager  could  grant  no  such  credit  on  his  own  responsibi!:ty;  though  he 
conld  discount  trade  bills. 

His  business  was  to  see  that  the  advances  were  kept  within  the 
amount  of  the  credit.  He  could  certainly  exercise  a  discretion  as  to 
-rSethcT  cheeks,  which  would  overdraw  it  temporarily,  were  to  be  hon- 
.Tfi;  but  this  he  did  on  his  own  responsibility.  But  any  customer  whose 
•', ,  ount  was  invariably  up  to  the  limit  and  tending  to  rise  beyond  it,  was 
lU&de  to  feel  that  his  business  was  undesirable. 

We  charged  a  uniform  rate  of  five  per  cent,  on  advances  and  dis- 
counts, and  a  quarter  of  one  per  cent,  in  addition  on  the  debit  side  of  the 
account.  Divided  accounts  were  unknown.  Such  a  thing  as  obtaining  a 
cash  credit  at  more  than  one  hank  was  unheard  of;  and,  if  attempted^ 
«ould  have  been  met  at  once  with  a  request  to  close  the  account. 

Sometimes^  however,  a  casual  discount,  or  the  cashing  of  a  check 
would  be  offered  by  the  customer  of  another  bank  at  a  distance,  and 
some  of  the  troublesome  transactions  of  the  Rotherham  Branch  oc- 
curred in  this  way. 

There  was  a  manufacturing  village  about  four  miles  otf.  In  thi?  vil- 
lage were  situated  the  great  works  of  a  firm  in  the  porcelain  trade. 
Sometimes  the  dstute  heads  of  this  cc  icern  beguiled  our  branch  manager 
into  cashing  a  check  on  their  London  bankers,  which  check  would  some- 
times be  refused.  And  well  do  I  remember  being  sent  over  to  see  these 
people  (living  in  great  style)  on  one  winter's  morning  before  breakfast, 
to  endeavor  to  obtain  payment  of  a  dishonored  check,  being  expected  to 
be  back  by  the  time  the  bank  opened.  I  did  not  get  the  money.  And  aa 
I  had  to  walk  there  and  back,  it  was  a  pretty  severe  experience.  In  the 
same  village  a  general  store  business  wns  carried  on  by  a  very  clever  man 
who  had  more  ambition  than  capital;  and  had  creat-d  quite  a  sensation 
by  purchasing  the  fine  residence  and  grounds  of  the  Squire,  and  turning 
the  front  of  the  house  into  a  store.  This  step,  however,  proved  his  ruin. 
His  business  expeniies  were  now  larger;  so  were  those  of  his  family;  and 
he  was  constantly  short  of  money.  He  kept  his  account  in  the  York- 
shire District  Bank,  at  Donca^ter;  but  he  would  occasionally  drive  over 


EXPEHIEN'CES  OF  BANKING  LIFE  IN  ENGLAND.  Sl» 
to  oar  town  (which  »..  much  nearer)  to  get  .  check  e..hed.  Thi.  the 
^XtoZtT.    R  r  "J-   ^'■"'-''•''™«<-»llyp.id,Ietth.t 

iTe  hV.7«        .J'    ."      "/  """"*  ""  "'"""'  "-tantly  ovcrdr.™. 
»«r  .t  iofr,        11''  "u"  "■"»"'"»""B  ''I««tedly  with  «hc  n..„- 

formidable  .nrtrument  called,  I  think,  a  Cognotil,  by  which  they  were 

^.rrhad'"  tT  "'"''^'  '"  *e'  ■-"'""-■  *'■  ■■"  "<^^  in  t":  and™ 
!rith  ,t   r  .  T""*"'  '"'■''"«  "■"'""»  *•■=«=  peremptory  order., 

he  me    the  unfortunate  storekeeper,  who  wa.  driving  over  to  Doncler 
o  .ee  h,m  to  beg  for  time  to  arrange  hi,  ..fair,.  The  manager,  on  meX 

pur^rtof^h^  """"''"■.'''''  *"""■"  °*""  "f  "«  "-"k.  l«™ed  the 
a  ruined  man    hia  rtore  closed  up,  and  an  officer  in  poMCIon       The 

.1  i  "^  i  ^  "'  """  '  ''"*  f"  ■""«  '"enty  pound,  (iao)  bat 
the  ividend  wa,  .mall,  and  we  lo.t  the  greater  part  of  It.  '' 

never  f  ,  "'""J  ''°"°"'  '"""  P"P''  '"  ">«  neighborhood;  but 

never  f™m  people  in  the  town.    All  their  dealing,  with  n.  were  in  the 

itSlv  """"•.■^"'•^  •"'■•"""'  '■•^  "■'  '-"«''  ■»■•  ■«°™<-  B»t  "c^.- 
d  °^f  "  "^""^  '?  "^  "^"  "'"'  '*'''  ""*  ""^  "«^"  'd'"ce.,  would 
drop  ,n    and  ..k  for  an  advance  of  fifty  pound,  or  «,  on  .  proiK^ry 

ory  becau.e  of  hi,  invariable  habit  of  letting  hi.  bill,  be  protested  But 
he  ju.t  a.  invariably  took  then,  up  .oon  afte^ard..  He  J^.  one  of  thoL 
odditie^  «,  common  in  England,  of  whom  Dickens',  page,  are  full  and  I 
remember  once,  on  the  manager  reminding  him  that^iThaWt  of  Jtfng 
hta  bill,  go  to  protest  mu.l  cost  him  a  good  deal  of  money,  hi.  replying* 

hut  B  <  r  "''"•""•P''-  '  *«•'  *«P  »«*  particular  account  of  L 
h,lh.    But  T*,.  /»,y  „„  pro(e.(erf,  /  Hon.  I  have  to  pan  them." 

Method  of  Dkalino  with  Trioe  Biil.. 

c^Ih  '^Tl  'l"!"''^  """*'  '''"'  "'"  ^'•"  ""h  wa.  diametrically 
Tbi  :  t  T^  r"""  °"  ""'  ""'  »'  **'  Atlantic.  Inatead  if 
"f  whtV  t'.!'"  ""=""■"«"  "'  ">'  "-'rf  f»'  examination, 
K^me  of  which  might  be  pa„ed,  and  some  thrown  out,  they  were  aU 
p«...ed  to  the  credit  of  the  customer  by  the  teller,  just  as  if  thTy  we„ 

11^1,  f?.'  \:7  "ri  ""^'  "'  ^-'"8  ""'"•"'>  tat  it  was,  in  f«t° 
nothing  of  the  kind.    And  for  thi,  reason:  all  the  bill,  paid  in  to  a  ^ 


i 


BANKING    AND    COMMEUCE. 


SiO 

tomer'i  credit  were  irndc  pnynWr  in  London,  nnd  .tnt  np  to  our  tanktrl 
for  cuUcction.  Hnrely.  indeed,  wer?  .ny  of  theK  .enl  b.ck  proteited; 
for,  if  nny  onrtomeri  bill,  came  b«ek  often,  he  wai  taken  .horply  to 
task,  or  desired  to  close  his  account. 

As  to  nnr  applications  for  renewals  of  trade  bills,  they  were  never 
heard  of.  If  such  an  application  had  been  made  it  would  have  dam- 
aired  the  credit  of  the  applicant  beyond  redemption.  The  truth  was,  that 
the  bank  would  keep  an  account  with  no  man  unless  his  bills  were  good 
enough  to  pass  without  In-ing  first  submitted  to  the  manager.  Not  that 
thev  were  never  scrutinized:  for  they  were  examined  most  carefully  as  to 
their  legality,  the  sufficiency  of  the  stamps,  the  regularity  of  endorse- 
ments, and  so  on.  ,  . 
Another  fundamental  point  of  difference  was,  that  ordinarily  no  limit 
was  placed  upon  the  amount  of  trade  bills  discounted  for  '"^■'•»°">"- 
One  reason  for  this  was,  not  only  the  uniformly  high  quality  of  the  bilU 
themselves,  hut  for  the  facility  of  rediscounling  in  the  London  money 
market.  Hediseounting  is  almost  unknown  on  this  side  the  Atlantic;  but 
it  was.  at  that  time,  quite  common  for  even  the  best  banks  of  England 
to  send  batches  of  bills  to  the  great  discount  houses  of  London  and  have 
the  proceeds  placed  to  credit  with  their  own  bankers.  There  was,  there- 
fore; no  special  reason  to  imp.«e  limits  to  the  trade  bills.  But  very  care- 
ful and  exact  limits  were  imposed  oii  the  loans. 

The  svstem  worked  well,  and  the  high  quality  of  the  business  done 
may  be  gathered  from  the  fact  that  the  losses  of  the  whole  bank  rarely 
amounted  to  over  five  hundred  pounds  a  year.  I  well  remember  the  chief 
m.an.ger  once  writing  me,  after  1  had  come  to  Canada  (for  I  correspond- 
ed with  him  until  his  death),  in  a  vein  of  low  spirits  over  the  bad  times 
thev  were  passing  through,  and  his  expressing  the  fear  that  the  !<»■« 
of  the  vear  would  amount  to  a  thousand  pounds!  Yet  the  bank  did  the 
leading  business  in  one  of  the  largest  manufacturing  districts  of  England. 
The  majoritv  of  the  accou-nts  in  the  branch  where  I  scried  my  ap- 
prenticeship ga^e  very  little  trout!-.  Trade  was  quiet  but  prosperous, 
and  a  failure  was  a  rarity.  During  the  six  years  I  passed  m  the  branch 
I  do  not  think  (here  were  six  failures  in  the  whole  circle  of  our  custom- 
ers The  popuLition  and  wealth  of  the  town  have  increased  enormously 
sine-  then.  Gas-lighted  streets  now  extend  over  the  suburban  country- 
lanes  of  mv  carlv  davs.  But  the  characteristic  of  safe  banking  still 
adheres  to  "it.  o'nlv  a  few  years  ago,  I  was  once  again  in  the  office 
where  mv  carlv  vears  were  passed,  and  the  manager  told  me  he  had  not 
lost  i:00  a  vear' for  seven  years  back,  and  had  never  had  a  past-due  bill 
in  his  wallet  for  more  tlion  a  rrerk  during  the  whole  of  that  time.  Yet 
the  branch  hod  done  a  very  large  business,  and  must  have  had  credits  out 
at  all  times  of  hundreds  of  thousands  of  |ioimds. 


EXPERIENCES  OF  BANKING  LIFE   FN  ENGLAND. 


TrOL'BLCIOME   AtCOl'NTi. 

,:J'  Y'  -  "7"'  ■*""""  "'•'■  "°"  °  f'"  tro„ble,om«  thing,  lo  d«l 
forn.,d.bl,  document,  of  srcurily  „lre„dy  mentioned,  »nd  .l,o  long  Ii,l. 
of  the  chattel,  of  .  eu,tomer,  who,e  ,took  we  had  taken  po„e„ron  of 

he  .to«i  at  the  counter  when  'hard  up"  .„d  begged  the  n>.n.ger  to  allow 
h,m  t„  .xeecd  h„  credit.     But  he  had  to  fail  at  la,t,  and  we  to  re.u" 

of  thcT  father,  b„,i„e„,  built  up  one  of  the  largc.t  manufacturing 
concern,  ,n  the  district,  and  became  pro,perou,  and  wealthy  me"  witS 
handsome  villa,  in  the  brce.y  suburb,  j„,t  mentioned. 

«  e  had  during  that  ,ix  year,  two  ca,e,  of  forgery.    One  wa,  of  a 
ra,ua    eu,.„mer  for  whom  we  had  di,eoun,ed  a  fL  ™„„  biU,    ,1: 

leman  half-man  of  bu,in«,,  of  whom  we  used  to  have  manv  repreL- 
CiZ  'I  ::"•'  ■'«."  of  Canada,  and  .ome  of  whom  ,  "after^, 
had  to  deal  with  in  one  of  the  branches  of  the  Bank  of  Toronto 

They  were  a,  a  rule,  highly  honorable  men,  but  given  to  live'bevond 
.he,r  mean,.  Bu,  forgery  wa,  about  the  last  thing  to^suspect  thL  of 
no.iH^l  7?- ''"r"'  ''''°  ""-J  -'"■  •  "idowed  mother,  „  ladv  of  g«xl 
po.,hon,  had  fallen  into  the  terrible  temptation  to  forge  bill,  ;•  and  w^ 
inX^^'  u  """"""""^  "f  "-  f»-".v  when  ft  was  diseo.Jed 
tvnie T        '"""""■"•^  """™"  (I  dwell  on  these  because  they  we« 

^I^  r"i  "1  °V"  '"""""  ^'-  '»"'«■"  "".-here)  w„,  a  l.r« 
tmber  merchant,  with  a  good  business,  very  loisely  managed  H^ 
a  lowed  h,,  cu.tome„,  far  too  much  latitude,  and  gradually  got^^  boot 
filled  wth  what  we  would  call  a  ma,s  of  ■lock-up,."  T he  Mnsequ^M 
«a,  he  wa.  alway,  short  of  money.     I  well  remember  one  dTTw^' 

11      LM""'"i  "■"'  *"  ""^  '°  *""•  '»"''  "  ■""«'.  begging  for 

money  beyond  h,.  cred.t     On  the  manager  positively  refusing,*"  puUed 

u    of  h,s  p^ke.  a  handsome  gold  watch,  and  begged  for  an  advance  on 

hat.     let  he  hved  m  good  style,  and  occupied  one  of  the  handsomest 

1  tt'"  rt  "?'«'''^"'°'^-.  '^'■"  ">''^  "f  "-ing,  of  course,  came  to  end 
at  last.  The  banlc  demanded  payment  of  hi,  acenunt,  and  notified  hi. 
guarantor,,  who  were  wealthy  relative,.  They  disputed  the  correctne.. 
of  our  account  demanded  proof,  and  well  do  I  remember  the  long 
.earch  over  stack,  of  voucher,,  which  had  been  filed  awav  for  year.,  in 
order  to  prove  the  correctness  of  the  final  balance  wc  rc^juired  them  to 
pay.  We  e,tabl„hed  our  ca,e  at  length  and  got  our  money.  He  di,- 
appeared  from  the  ,cene,  and  hi,  busines,  wa,  taken  up  bv  the  manager 
of  h»  yard  a  prudent  and  economical  man,  who  built  up  a  splendid  con- 
nection and  fortune  for  himself  out  of  it. 

But  the  long  search  for  these  vouchers  impressed  me  strongly  with 


?r^ 


,32  BANKING   AND   COJIMERCE. 

MIC  of  tlie  drawbucki  to  the  lyilem  of  «dTance«  by  overdraft  on  current 
occount.  .     •,  • 

Such  were  «omc  of  my  early  hanking  eiperiencM,  out  of  which  grew 
object  IcMoM  well  remembered  in  after  life  when  I  came  myielf  to 
occupy  the  position  of  manager  in  that  far-diitant  country  of  Canada 
to  which  I  had,  at  that  time,  ai  little  proipect  of  going,  ai  I  had  of  being 
tranaported  to  the  moon. 


Transfrr  to  Head  Otttct. 

A  change  came  at  length.  I  was  transferred  to  the  head  office  in 
Sheffield,  and  bade  adieu  to  the  branch  and  its  associations  with  little 
regret;  for  I  wis  to  enter  upon  a  scene  of  greater  activity  in  an  office 
with  an  immensely  larger  number  of  accounts,  where  opportunities  of 
gathering  eipcriencc  would  be  much  increased.  Besides  this,  all  the  life 
and  bustle  of  a  big  manufacturing  town  would  be  before  me  every  day. 
In  that  office  I  spent  the  neit  five  years,  and  came  into  direct  contact 
with  the  Chief  Manager,  of  whom  I  have  already  spoken,  together  with 
a  number  of  men  who  were  my  superiors  in  ability  and  position.  There 
were  three  cashiers  (or  tellers)  at  the  counter,  and  on  busy  days  foui. 
Wc  had  about  a  thousand  active  business  accounts  In  the  ledgers  ai  well 
as  a  considerable  number  of  fixed  deposits.  The  business  was  active  and 
dourishing  even  then  (though  it  has  immensely  increased  alnce),  and 
altogether  the  change  was,  at  first,  decidedly  agreeable. 

My  work,  howe.er,  was  much  more  monotonous.  In  the  branch  I  had 
to  take  a  hand  in  evcrj-thing,  except  waiting  at  the  counter.  In  a  small 
way  the  whole  experience  of  a  banking  office  came  before  me;  and, 
although  I  did  not  actually  perform  the  duty  of  teller,  I  had  plenty  of 
practice  in  assisting  the  manager  to  sort  notes,  count  gold  and  silver, 
arrange  checks  and  drafU,  conduct  correspondence,  and  handle  and 
examine  trade  bills.  The  names  on  some  of  these  I  remember  to  this  day. 
But  in  the  head  office  there  was  a  thorough  subdivision  of  work,  and 
each  man  did  one  thing  only.  I  was  little  better  than  a  junior  In  age, 
but  was  put  in  charge  of  one  of  the  current  account  ledgers,  which  post 
I  retained  until  I  left  the  bank. 

It  was  monotonous  work,  and  at  times  I  fretted  over  it  a  good  deaL 
But  there  was  a  most  important  education  in  handling  these  ledgers,  for 
they  contained  the  whole  of  the  cath  adranca  of  the  customers  of  the 
bink.  )l  was  there  I  learned  the  position  of  all  the  manufacturing 
houses  who  did  business  with  us.  .Many  of  the  names  were  known  aU 
over  the  world,  and  are  to  this  day,  in  the  United  States  and  Canada  as 
well  as  elsewhere.  Some  of  them  were  wealthy  and  strong  beyond  ques- 
tion, and  kept  far  within  the  line  of  credit  allowed  them.  Most  of  the 
others   were   in   good   position,   doing   a  thriving   business  on   adequate 

"   But  there  were  a  few— a  very  few,  considering  the  number  of  the 


EXPERIKXCES  OF  BANKING  LIFE  IN  ENGLAND,     ij, 

doing      The..   c„.t<.,„„,    wr„    .lw..v.,    «„.„ci.lly   .p„kl„.     .^ "v" 
w",      edfre-  of  ,hHr  credit,  often  ..„ti„g  ,„  J,X..  .««,  ."k  n^ 

we  i'^ZlL™  °'  ■""'■'"*  '*'"''•  ■■«°°''-"  *"•  '"  ^l""  i"  'he  town;  bnt 

Tfler  .k,  h  ,■  "'"•  ""  '""  """'''  '"■=  l'>'l<i"g  the  door 

•fler  the  horse  wa»  stolen  to  „ti.fy  so  clever  .  m.n.mr  «  we  h.d-  .»J 

h.d"]  'th"T  1:  ""r"  ""  '^"""■'i-P".  to  theTnTof  the  office'  (^ 
h.d  h,thcrto  been  f„,  ,w»y  fron,  tho  counter),  in,n,edi,tely  behind  t" 

;,.        ■.  J'  "'■  '•"'  <!'""»">•  f'om  memory,  „nd   I  think   I   eo-M 

During  the  time  I  wa.  in  the  head  office  of  the  b.nlc  the  terrible 
p.n.c  or  18,7  tr.„.p,red.     The  ,re,t  feature,  of  thi.  p.nt  .^  tr^.tea 

«L„      l""";    '  ''"'"'V  *""  "  "  "•"■"'"''I'^  ho-  little  it  affected    Se 
ta.no..I  .nd  eommcrei.!  p«.iti„n  of  Sheffield.     No  great  failure  tr.n- 

by  the  bank  wa.    o  i™.'.  ,*,  ,i„,  „f  .fce  trade  bill,  di««unted.     Yet 
London  wa.  convulsed  with  agitation.     Great  ho„«.,  were  failing  every 

l.!d*  7,     "  ''""'°"'   """  '°  '™   P"  ~"'-   '-f""   ">e  panic 

abated.  Our  manager  wa.  one  of  the  country  banker,  who  had  .tren 
uo„.ly  opposed  Sir  HobeM  Peel'.  curr«,cy  legSa.ion  ofM«  a.  Ltlrf 

Me.  thatlirh  .  T.-  ^""^  ,°'  ""  """"^  '^^"'  '■•''  "*™M  tS. 
dea  that  .uch  legislation  would  put  an  end  to  panic,  and  their  eon 
tention  wa.  ju.tificd  by  the  event. 

Another  event  of  importance  wa.  the  failure  of  the  leading  private 

p  nic""*Th""  V"  T;-,  '^"'  ■"•""■"'  ''«'  ^  -nn-tion  wUh  the 
panic.  The  partner,  h.d  long  been  the  leading  people  of  the  neighbor! 
hood;  the  head  of  the  firm  being  a  Member  of  ^ariiament,  and  "ht^ 
at  one  time,  had  ne.rly  nil  the  business  of  the  district.  But  it  did  bu.!- 
nes.  ,n  .  generou,,  old-fashioned  .tyle,  and  go,  it.  book,  full  of  iX 
up.  and  uncolleetable  debt,.  It,  downf.Il  waTinevit.We  when  tim  ^of 
competition  set  in;  yet  the  people  of  Sheifield  had  great  confidence  n  t 
and  It,  deposit,  and  circulation  we«.  large.  The  failure  produced  i,^ 
mcnse  exctement^     But  there  wa,  no  run  on  the  other  b^nk,.      uZ 

tit  """  ""'/.'  ''°  ""'  "■"'™'"''  •""  I  ■J"  """ect  that  we  got  . 
large  acccum  of  depositing  cu.tomer.  and  the  account,  of  public  Zi^ 
and  .!.„  a  few  desirable  account,  of  manufacturer,  and  merchan.r  ' 
The  railway  to  .M.,n<-herter  wa,  wider  construction  at  that  time  It 
wa.  a  mere  railway  from  one  town  to  another,  a,  nearly  all  the  railway, 
in  England  were  in  their  origin.      The  great  combination,  which  now 


I 


BANKING   AND   COMMERCE. 


3i* 

1,  now  .  p.rt  of  a  grrnt  ■■'•"""/^'f';'"''  „  „„  .„  ,„„n»ou.  .mount 
But  It  w..  pl-nncd  «  .  P»«lr  '«•' "jf,;  1~„,  H.rdly  »  n-il.  of 
of  money,  ..  It  p..«a  '*"  "«j^„:,^rt,on  Ll-''"'  •»  inordln.t.  numb.. 
«  «„  on  l.vd  ground.  I .-  ""'™f  7tl.rion«.t  tunnel,  in  th.  world 
of  bridge,  ond  '-^.nkjnent.,  .nd  one  of  «;°"«^  ^  ^  .^^  „  ^r- 
„,  needed  to  en.ble  the  ro.d  to  ^'T^'^J^^^  j,Jn„.  „f  people  in 
,.nd.  that  «P""«' ^"Vo/L    .«W  who  couW  not  .fford  to  t.ke  money 

transpired  during  the  whole  period  "f  ;>.>'  ^  "'';^;P-  ,„  ,^,  ^.nk  varied 
fL  ye.r.  of  my  life  thu.  p»..ed.     .^  >    [f;„  ^  „f  .„  .eeountont, 
„„le.  yet  I  wo.  daily  beeoming  more  "P"""  ^•;  ;^«^'  ,^,„  .ith 

and  forming  habit,  of  'h"°"«''"7/"t°'r"';'"'  AndTw..  learning  to 
the  power  of  long  and  -""f™  --^J  /  ™,  ,ZJL,  and  to  under- 
di«rimin.te  •-""■'" ''".''."h  bank  w"  re  made,  and  how  it.  lo..e.  were 
atand  how  the  proHt,  of  the  .^""^"^  ™„  '  f„,„„  eareer.  I  w.. 
abided:  all  whieh  .tood  me  n  good  """'"  ™^  ,„  „f  „„,t  of  the 
^eoming  too,  ^^ toVh^  1  td"  M  ilnd' — "  England  and 
leading  bank,  .n  the  Northern  bu.ine...     The  great  bankmg 

heard  di,eu..ion.  on  the  r  '^^'^^^^X^Z"'  well  af  the  di«ount 
fim.  of  London  were  «l«o  ""-'»"''y  ^^^^^^^^  ^„„,h  ;„  M«.ehe.ter  we 
hou.e.  and  the  »-\»f  ttdl'l^fmeltr  the  in.cre.t  with  whieh  on 
n,ed  to  oorre.pond.    And  we     -l"  '  '"»  „^        Lombard  Street, 

the  oeeasion  of  a  holiday  v,.,t  to  London.  >•'"«''    P       j.^,  ^ 

and  went  into  «.me  of  the  h.rger  '«"^';X^:ge,ne.,    their    erowded 
Smith,    Payne    and    Smi  h .,    «  '^-«,„^^*'     :rfamiliar  1  . 
counter,  and  rn.hing  ''""7' ;'"';/ „'"„Tefy  different  eapaeity. 
with  Lombard  Street  a    a  future  day,  m  a  very  ^  ^^^^  ^^^ 

Though  the  Sheffield  °»""f °''"""  ^f  ,Vw  co.fe'P^d™"  with 
th.  United  S'-'e.  I  do  not  -emUrJhat  w^  ^  e-^J^,   j_,.„,^, 

any  bank,  there.  /•°''  "^  '^''./'"""^'.t  lirm  of  Brown,  Shipley  «.  Co., 
rriltrnTnlM^fd'eX\X^e.    Of  Canada  I  knew  .b,olutely 

nothing. 

TiMPoR.Miv  Withuhawal  fbom  Bankiso. 

.u         4  „f  «ve   vear.  circu  ustonce.  aro.e  which   made  an 

But  at  the  -/  °^«;  ,/;V;a;.a;  „„d  a,  there  wa.  little  pro,peet 

increase  of  meome  »'*''"7''   ",   °'     '   „   ^eing  impaired  by  close  con- 

„f  it  in  the  »>-"j^j„t:d    -rrZti  ;  ^."uon  I  whieh  I  had  not 

L— olT^le  .teZn  of  income,  bu^  much  employment  in  the 

"^"ht,  for  a  time  I  left  banking  altogether,  having  had  before  m. 


KXPKRIENCES  OF  BANKING  LIFE  IN   ENGLAND,     tat 

Iht  invalunblc  Iriuin  of  an  Itiititutiim  rondiiilrd  on  ■uund  and  wrll-n>n- 
•idfwd  prinrlpin,  whirh  Ud  it  to  a  high  plon.-  of  •ucru;  which  did  in 
tact,  furniih  me  In  after  dnja  with  a  mode]  towardi  which,  when  th« 
rcsponiibllitles  of  management  were  placed  upon  rac,  I  itrnvc  to  mould 
the  lmiinc»  with  which  I  had  been  entru.trd  in  the  far-olT  countrj 
where  my  future  lot  wa>  caat. 


Inlo 

■laor 


2  Rtf.rrln.   to   the   Ouak.r  (cnilrmnn   nnm.J  In  an  ,o,iy  „„ ,  „,  „,|,  ,.,,.„. 

fr,;,^r„r.:"'„:'„':- "  • """'""'  -"""  -  ^""■*""  •-" «"--'' 

of  ,t*h?v7o'i"™TK'"  ""  ""'"  ''^''  "■<•"  "•""   >.Ty   .mo)>   b.,looi„,.    „he   ft..d 
in  II.  own  nn«  or  bii.m.....     Tli«  toondor  of  .l,r   mm    Had    .fiuaalnl    lo    . 
y™r.  to  ilv«  hli  Hon.  .  a,x„l  oducllnn;  and  ih,y.   In  dor   Mmi'  ".r^   t.,l<,.„ 
Sf"?h»r'„  ,"■     ■^l'*  ;'"'■•.',  "'  """  "■"  '  """  "'  """'loou  ln,;ui,.n™  „nd 

f^^,    .;    ?  J^     '.""  »"••'■''•  «•«  oonllnnally    oiamiKd    for    mon,y.       In 

M:..}^,'^,,  '.J'.'""  '"  ""  ■"""  •"  "'•"■■""a  th-  "nanre,  of  the  hu.ln,..  one 
«rt.h,r"'V,"""'  •"'""°"  -"^  n.»n,.f.cl,„ln,.  ThHr  acoonnt  w..  .ta',.  l" 
»arlab)y  overdrawn:  and  I  l»ve  tr„iufntly  .,.,n   thi.   I™dln,   partner   w™t°n.    .t 

:o\"",arc:i:;  r,Lr°" "  —'  "•"""  "■«  -^-^  He'b."d™;„T':'a..:; 
.rab;^%r;dT:.'.::re„rof'';r;'i-;.;r' '"-"' '"-  "'  -'""*■"'■  """-■ 

wy  tb.r^;:  1"  t  Vr"  ""'■  '•"■""»''<■"■>  »-  S-onl»>-  .ftemoon;  :„d  t! 
tavln.  f^r  .o™  ,1  ^  neoe..lty.  o„  „„,  partloolar  Saturday,  th,  aooonnt 
e?or  h,  Z^^l  ""  ■?'"  """  ""  •-""Wl"'^  "tnl'.  the  beod  of  the  hou.a 
(for  he  had  become  .uch  by  thia  tlmel  appeared  at  the  counter  a.  u.,!..  and 
proaentet,  .  check  wblcb  would  .we,,  .1,1,  ™  re  ,.r.e',y 't'he  .Tre^d;  o"  rdTwIn  "a"c' 

th.  mn'oe^Thirh'Td'      "•"^•""-'-  <""  '"o  P»rty  replied  that  he  mu.t  hav. 

i™'',;L•a."'e",L''■thr;■„rra'na"b^^^'e''d"■   •"""-"•   '"   """"■   "'   -'*   - 

E;'^HH'~  — -• '"™^  -  ^^^-' - 
£;r^  rnrry;:.r";j:r^";ij>^;hr;;.:r'::"Ln;^^  xrr; 

«,™''!I,!;"J^"°"'";'  "■•  "'""'  '"'">"<l«»  o    the  eu.ton.er.  the  director  remalne.1 

S3~  -  -" -iTdoJ^rr  jbrb«"r- irS 
"r,.'r„'i„rheri;„rnr;i'."t.n'."r.hrti.;rw\^'hr.3;;;--r-- 


BASKING   AND  COMMERCE. 


.^  k.  i«  •«■  a  Quaker.    "H«  hM  I*"*  ■• 

.v.r  .  mlUloi.  .frlln,.   and  '•"•  *''"  ~.„„  ,„  ,«,!  |mpro..m™>..  and  1>«  M; 
■hap.  -I  a  On.  puMlc  P«'k.  •  y"'"^iZw.      HI.   maMlon    I.   »"•    »'    >»• 

«•„,   r-ldrac  W  "»!,':';'  "UrfMlh,    , hoi.    oommu„U.    and    ha.    Wt    a 

nr-'MriTu  „■::.'".:  '.or^n  z .».:.  -» •• »-  ■ »-  -' 

^"m.  nam.  wa.  no.  William  Thomp«». 


CHAPTER   11. 

MY  ixrauuiou  OP  BAmuHo  a  oanada. 

PilUMiKAiiv— FiMT  Ar«iAi»T«Kci  With  CAx.nuN  B.xkixo— E«- 
PtovjiD  nv  Till  Bank  or  To.onti.— STiiAiniiiiMso  Out  a  Bhavch 
— Revi-lhiom  or  18.17. 

AFTER  loning  Uir  .S1„'K.I,I  Bmikinn  <  oniponv,  I  .ntrrrd  Iht  ™- 
-1  ».  ploy  of  n  Inr^e  flour  mllhr  iit  r,,hicr  and  lrin.ll,.r.  Tli>-  pro- 
prlrtor  had  formrrlr  l«in  „  railwn.T  conlrnctor.  fpoiu  wliicli  biial- 
oni  he  had  rrllred  with  a  coiiip.  trncy.  But  while  cnrrving  ,.n  hi,  flour 
mi  1,  he  entered  tlie  field  of  railway  conHtrwtion  on  'lhl>  »ide  of  the 
Atlantic;  undertaking  e.ten.ive  operalloni  in  eonnectloii  with  hii  partners 
In  New  Bruniwick  and  lower  Tanada. 

I  had  charge  of  the  financial  department  both  of  hi.  millinft  huaincM 
and  of  the  contract! :  and  wai  ultimately  >ent  out  to  Montreal,  in  con- 
nection with  the  latter.  I  now  had  the  opportunity  of  .eelng  .omething 
of  the  Lnited  Statn  for  the  fint  time,  and  wai  aitoninhed  to  lee  luch 
dtlM  as  New  York,  Boston,  Albany,  etc.,  of  which,  with  the  usual  insular 
ignorance  of  a  young  Englishman.  I  had  formed  such  inadequate  ideas. 
In  Montreal  I  remained  until  his  death  bv  shipwreck  brought  the  whole 
business  to  a  close.  During  this  four  years'  ei|>crience  I  learned  invalu- 
able lessons,  such  as  I  could  scarcely  have  learned  in  any  banking  oAice, 
no  matter  how  extensive  its  business  might  be. 

First  Acgi'AiNTAKci  With  Canadian  Bankixo. 

It  was  while  conducting  the  financial  alTairs  of  this  firm  in  Montreal 
that  I  came  into  contact  for  the  first  lime  with  Caaa<fiaa  baniing.  But 
the  methods  of  a  Canadian  bank  were  wholly  different  from  what  I  had 
keen  accustomed  to  in  England,  especially  in  the  matter  of  paying  in 
and  drawing  out  money  across  the  counter;  and  it  was  long  before  I 
became  accustomed  to  them.  The  English  method,  I  thought,  was  much 
more  simple. 

The  mode  of  discounting  trade  bills  was  not  essentially  difl'erent,  but 
the  method  of  granting  credits  was  so  absolutely  dissimilar  that  during 
the  whole  lime  I  had  to  transact  business  from  the  oatsii/e  of  a  bank 
counter  I  never  properly  understood  II. 

I  have  discussed  the  difference  elsewhere. 

I  learned  also  while  doing  business  outside  the  counter,  the  majui 
operandi  of  a  style  of  banking  of  which  I  had  had  no  experience  before 
namely,  the  negotiation  of  sterling  biUs.  The  whole  of  the  financial 
arrangements  of  the  firm  depended  upon  this,  and  I  became  about  as 


hi 
'I 


BANKING    AND    COMMERCE. 


familiar  with  Iht  buiincsi  then  as  I  wa>  in  after  yi-ars  aa  manager  of  a 
bank. 

The  head  of  the  firm,  however,  was  lost  on  the  steamship  "Arctic. 
His  partners  found  it  impossible  to  raise  the  capital  for  carrying  on. the 
great  contracts  that  had  been  entered  on,  the  Crimean  War  being  then 
in  full  progress,  and  the  money  market  of  England  clouded  over  with 
npprehcnsion.  The  construction  of  roads  was,  therefore,  stopped,  and 
a  large  number  of  officers  of  various  grades,  of  whom  I  was  one,  were 
thrown  out  of  employment.* 

I  was,  of  course,  by  that  time  well  known  in  Montreal.  We  had  kept 
our  account,  and  a  very  large  one  it  was,  with  the  Bank  of  British 
North  America.  .\s  the  financial  manager  of  the  firm,  I  had  become 
acquainted  with  men  whose  names  afterwards  became  prominent  in  the 
banking  sphere,  not  only  of  Canada  but  of  the  United  States.  The 
assistant  manager  was  Mr.  Charles  F.  Smithers,  afterwards  well  known 
as  Agent  of  the  Bank  of  Montreal  in  New  York,  and  subsequently  •« 
its  General  Manager.  The  chief  accountant  was  Mr.  E.  H.  King,  who 
was  even  then  displaying  those  eltraordinary  talents  for  calculation 
which  afterwards  distinguished  hira  in  the  higher  sphere  of  General 
Manager.  Little  did  I  dream  at  that  time  how  closely  I  should  be  asso- 
ciated with  these  gentlemen  in  after  life;  and  especially  that  it  should 
b-  my  lot  to  take  part,  as  manager  of  another  bank,  in  a  determined 
opposition  to  Mr.  Kings  policy  of  revolutionizing  the  currency  system 
of  Canada,  some  twelve  years  afterwards. 

When  the  affairs  of  the  contracting  firm  were  wound  up,  and  being 
out  of  emplovment,  my  natural  resource  was  to  fall  back  upon  my  own 
profession,  and  seek  a  position  in  a  bank.  My  first  application  was  to 
Mr.  Davidson,  who  had  by  this  time  become  General  Manager  of  the 
Bank  of  Montreal,  and  had  taken  over  with  him  Mr.  Smithers  and  Mr. 
King.  He,  however,  gave  me  no  encouragement.  The  bank  was  rather 
restricting  than  extending  its  business  in  consequence  of  the  monetary 
cloud  caused  bv  the  Russian  War.  I  had  obtained  an  introduction  to  the 
President  of  the  Commercial  Bank  in  Kingston,  a  bank  which  then  stood 
almost  on  an  equality  with  the  Bank  of  Montreal  in  the  value  of  its  stock 
and  the  business  of  some  of  its  branches.  Well  do  I  remember  calling 
at  the  bank  to  present  my  letter.  The  bank  occupied  a  splendid  building, 
and  all  its  appointments  were  very  fine.  I  was  courteously  received  by 
the  President,  a  distingnished-looking  gentleman  of  the  old  school;  but 
he  gave  me  the  reply,  which  I  subsequently  gave  myself  to  dozens  of  ap- 
plicants, that  they  had  no  vacancy  at  present,  but  would  place  my  letter 
on  file  and  give  it  attention  when  circumstances  called  for  it.     Of  thil 


3  In  vl»w  ot  .ubsMuent  developments  It  1.  Intfie.llng  to  notice  what  these 
conlmcT.  were.  Several  ot  mem  were  tor  line,  that  ultimately  formed  part  ot  tn. 
Canada  Pacino  or  the  Grand  Trunk  Sv.tem.  but.  >ln,..l.r  to  ..y.  the  """''•;'« 
tered  Into  a  con.tH.t  to  construct  a  wa»on  roed,  and  .ub.equently  a  railroad. 
acroli  the  lethmus  ot  Tehmntepec  In  Mejloo.  .tartlri  (Tom  Vera  Cru».  and  baa 
sent  out  a  party  of  surveyori  to  lay  out  the  line. 


MY  EXPERIENCES  OF  BANKING  IN   CANADA.        3i9 

bank  I  thall  hnve  somethinft  to  My  later  on;  meanwhile  will  obieno,  al 
an  illuatration  of  the  changes  time  bring!  on,  that  in  that  vcrv  room 
where  I  had  rtood  as  nn  applicant  for  the  positim-  of  clerk,  I  stood 
twenty  years  afterwards  as  the  General  Manager  of  a  bank  that  had 
sncceeded  to  its  whole  business. 

EMPLOVRn  BV  THE   BaNK   OF   ToRONTO. 

Meantime  I  had  obtained  employment  of  another  character,  and  the 
bnsiness  I  had  in  hand  look  me  to  Toronto.  Al  that  lime  there  was  only 
one  bank  that  had  its  headquarters  there.  I  had  no  introduction  to  any 
of  its  officials,  and  knew  nothing  of  them;  in  fact,  by  this  time  I  had 
given  up  the  idea  of  banking  altogether.  My  re-entrance  into  it  was 
determined  by  one  of  those  accidental  circumstances  which,  apparently 
of  the  most  trifling  character,  sometimes  determine  a  man's  whole  future 
career. 

Talking  one  day  with  a  friend,  he  incidentally  referred  to  a  neiti 
bank  about  to  be  established  in  the  eily,  and  asked  whether  it  would  not 
be  well  for  me  to  seek  a  position  in  it.  He  knew  some  of  its  promoters, 
and  offered  »o  give  me  a  letter  of  introduction  to  one  of  them.  I  fell 
in  with  the  proposal.  The  letter  was  given.  The  party  to  whom  it  was 
addressed,  a  respectable  merchant  in  the  flour  trade,  referred  me  to  the 
gentleman  who  was,  lie  s.iid,  to  lake  charge  of  the  bank  when  it  was 
established.  This  gentleman  was  the  second  oflicer  of  the  Bank  of 
Montreal  in  the  city.  I  waited  on  him.  He,  however,  gave  me  litUe 
encouragement;  said  the  alTair  was  a  mere  project  at  present;  that  cer- 
tainly a  Charter  had  been  got,  and  subscription  books  opened  in  various 
places.  But  they  were  proceeding  slowly;  very  little  money  was  coming 
in.  and  he  rather  doubted  whether  the  project  would  ever  take  practical 
shape.  He  said  all  this  to  me,  of  course,  "in  confidence";  for  my  letter 
of  introduction  put  me  on  a  confidential  footing;  besides  which!  gave 
him  as  references  the  n.imes  of  first-rate  people  in  Montreal  whom  he 
knew.  ^  Moreover,  he  said  in  the  usual  way,  that  he  would  "bear  it  m 
wind."  I  called  agaiu,  with  the  same  result,  which  confirmed  me  in  the 
idea  of  abandoning  banking  altogether. 

A  short  time  afterwards,  however,  having  finished  my  business  in 
Toronto,  I  was  preparing  to  leave  the  next  morning,  when  it  suddenly 
occurred  to  me  (little  did  I  think  that  that  accidental  thought  would  in- 
fluence my  whole  future  life)  that  I  might  as  well  go  to  the  Bank  of 
Montreal  and  see  this  gentleman  again.  To  my  surprise  I  found  hii 
tone  wholly  changed.  He  told  me  that  matters  had  considcrobly  pro- 
gressed lately;  that  a  provisional  committee  had  been  appointed,  that 
they  had  leased  an  office  for  business;  that  he  could  offer  me  the  position 
of  accountant,  provisionally,  and  that  I  might  proceed  to  the  office  and 
open  the  first  books  at  once.  The  salary  offered  was  moderate  enough, 
as  might  be  expected,  far  below  what  I  had  had  in  Montreal;  but  I  ac- 
cepted it  as  a  beginning.     A  few  days  afterwards  I  entered  the  ofice 


I- 


MO  BANKING    AND    COMMERCE. 

Ill  which  the  bu.inM.  of  tht  Bank  of  Toronto  wm  carried  on  during  the 
fint  eight  years  of  iti  eiistence.  And  thoj  in  very  humble  fajhion  did 
I  eonimence  my  banking  life  in  Canada. 

In  the  Bank  of  Toronto  I  continued  twenty  yean,  in  the  MerchanU 
Bank  of  Canada  twenty-five  years  more,  thus  making  with  my  eleven 
yeara  in  the  Sheffield  Banking  Company,  a  banking  life  of  fifty-lil  yean 
before  I  finally  retired.  .,     ,       .  j  .1.     a_» 

It  was  on  the  twcntv-third  of  March,  1856,  that  I  opened  the  fint 
book  of  the  bank  by  entering  up  the  sum.  received  to  that  date  from 
subscriber,  to  the  stock.  The  whole  amount  was  only  some  «*™»r«« 
thouHind  dollars.  We  could  do  no  banking  husinew  until  ore  hundred 
thou..nd  dollar,  wa.  paid  in;  and  at  the  rate  at  which  .ubscription.  were 
being  paid,  it  seemed  a.  if  a  very  long  lime  most  lapse  before  we  could 
commence  banking.  I  was  for  several  month,  alone  in  the  office,  con- 
ducting, however,  a  large  correapoidence  with  subscribers  or  inquiren, 
the  former  being  mostly  request,  for  instalments  to  he  paid  up  aa  speett- 
ily  as  possible.  Once  or  twice  I  visited  localitie.  where  .ubaeriber.  re- 
sided, verv  much  a.  a  commercial  traveller  would  do,  for  'he  Pur^« 
of  collecting  instalments.  One  day  when  I  was  sitting  alone  m  the  office, 
my  good  wife  called  for  me.  I.ooking  round  upon  the  quiet  place  wth  no 
.igns  of  business  visible,  she  said  with  true  wifely  anxiety  /  am  a^roid 
thi.  will  »r«r  be  a  bank!"    And  I  more  than  once  thought  «>  myself. 

When  a  voung  man  in  England,  a  play  by  one  of  Dickens  s  associates 
was  running  its  course,  entitled  "Time  Work.  fToaJer./  Jh«Y««' 
wa.  a  more  perfect  illustration  of  it  than  the  career  of  'I"" /r"^  *^°'  " 
I  revise  these  lines  there  lies  on  my  table  the  statement  of  the  bank  for 
the  year  1908  which  read,  as  follows: 

Capital    paid    up ^^'"^ 

Rest   (accumulated  reserve  fund) 4,500,000 

Total    assets    ^00,000 

From  this  it  appears  that  its  deposit,  are  $86,800,000  and  its  circu- 
lation of  notes  neorly  four  millions  more.  .  .  .1.  , 
Who  could  dream  that  I,  as  accountant,  was  ever  employed  m  tnot 
very  bank,  slowlv  entering  moneys  paid  in  on  Capital  Account,  wluch 
amounted  at  that"  time  (1S56)  after  month,  of  labor,  to  no  more  than 
thirty  thousand  dollars,  and  .ilmost  despairing  that  the  sum  would  ever 
reach  one  hundred  thousand  dollars.  Time  has  certainly  worked  won- 
ders" in  this  ca.e,  and  illustrated  the  truth  that  "Great  oak.  from  httle 
acorn,  grow":  and  also  that  men  .hould  never  de.pi.e  the  days  of  .mall 
thing*.* 


n^ 


MV  EXPERIENCES  OF   BANKING  IN   CANADA.        S3I 

Subscriptions  continued  to  come  in  slowly,  but  townrds  the  middle 
of  suniDier,  strenuous  measures  were  taken  by  the  Provisional  Commit- 
tee to  worli  up  the  amount  paid  in  to  #100.0(K)  so  as  to  enable  the  bank 
to  commence  business  before  the  great  crop  movement  of  the  fall  season 
began.  Their  efforts  were  successful.  The  required  amount  was  ob- 
tained, and  llie  bank  was  in  a  position  lo  open  for  bi-siness. 

Previously  to  this,  however,  n  very  important  step  had  been  taken 
by  the  gentleman  chosen  as  the  future  casliiir.  To  understand  the  bear- 
ing of  this,  however,  it  is  necessary  to  go  back  a  little. 

The  project  of  the  bank  originated  with  a  few  mt  n  in  Toronto  and 
the  neighborhood,  all  of  whom  wire  millers  or  in  the  grain  trade,  who 
took  the  step  because  of  the  utter  indisposition  of  tlie  Bank  of  Upper 
Canada  to  afford  facilities  for  moving  the  crops  and  purchasing  grain. 
TJie  branches  of  the  .Montreal  banks  were  not  well  affected  to  this  line 
of  business  either.  They  preferred  the  accounts  of  wholesale  importers. 
These  millers  were  men  of  sufficient  standing  lo  secure  a  Charter  and 
•tart  subscriptions.  They  determined,  however,  to  keep  the  control  of 
the  future  bank  in  their  own  hands.  A  well-known  and  prominent  miller 
"«n°  ^  '■"■"''''"'■  "  *"•  '"  <■"'.  "ffn  popularly  spoken  of  as  the 
Millers  Bank."-  But  when  overtures  were  made  b>  the  officer  of  the 
Bank  of  Montreal  before  mentioned,  he  demurred  to  this  feature  of  the 
business,  and  finally  stipulated  for  two  things:  first,  that  the  President 
inust  be  a  man  of  independent  means  and  out  of  business;  and,  second, 
that  half  the  remainder  of  the  board  should  be  men  connected  n,ith  gen- 
eral mercantile  bntineii  and  not  with  the  grain  trade. 

The  suggestions  created  considerable  commotion  amongst  the  original 
promoters,  for  it  was  evident  that  some  of  them,  who  were  looking  to  be 
directors,  must  be  passed  by.  There  was,  however,  no  alternative.  A 
president  was  sought  and  found  of  the  character  described,  and  several 
mercantile  men  of  good  standing  agreed  to  accept  positions  ort  the  board 
when  It  was  constituted.  So,  then,  when  the  required  capital  was  paid  in, 
a  meeting*  of  shareholders  was  held,  n  board  and  president  were  elected, 
the  casnier  formally  appointed,  and  the  bank  in  July,  1836,  opened  iU 
doors  for  business. 

The  bank  being  now  ready  for  business  something  must  be  said  of  the 
men  who  had  to  carry  it  on,  both  at  the  head  office  and  the  branches. 
The  president,  as  has  been  said,  was  a   gentleman  of  independent 

panle.  (which  did  not  thsn  exl.t),  amount!  now.  oc^ordlni  lo  published  rdurns 
to  mer  six  hundred  millions!     In  fact,  the  depo.U.  ot  the  Bank  or  Toronlo  alone 

^u^^.'JZ'.t"!  n''  °T"°'  '"  """'  """  """'  •"  "■«  «"°"  »'  "■•  "•"l"  0<  "•• 
country  put  toKether  when  It  commenced  biwIneM. 

t™«^'   'J!!'  ^"""J  *   '"'■''  "■""""  ""I""""  ««»  nude  bj-  an  old  resident  o» 

.1™       ?■  ,h     ,        .■.        "P'  ■'°''"   '^"''™-   »l»»'    recollecllon    went    back    10    the 

ii  ,1  .M^.     """,'."•.  °'  ""  '^"''   "'  ^'■"'•''  f  •»•*■•     "•  "■I"   "»•   the   Charter 

,i        bank  provided  that  llfty  thouMnd  pound,    currency     IBOO.OOOl     muat     b. 

!?i  -b^i  r*  .T,"'"""*  ""•""•'■■  'f'  •>>«  «"°unt  bad  been  sub.crlb^l, 
.b.n  u  ~  .  t„i:.:°''  °°'"'°  """"'  '"PIWIIW  the  project;  but  that 
When  It  came  to  THE  PATINO  IN  OF  MONET  It  was  Impclble  after  the  i."t 
•trenuou.  e.ertten,  EXTENDINO   OVEn  TIIE    WHOLE    ST  HrPKR    (^ANADA 


BANKING    ANB    COMMERCE. 


I  .  "ver  *  sure  it  wo„ld  h.ve  gone  down  in  the  general  wreck  th.t  en.ued 
•"  riuT^':'' -d  With  ,eg»rd  to  t,.e  n,e„  who  were  pUced  in 

=r::xeX  ^:^^r;:  ::^  tt^i:i.t^:; 
ttr;i-  ^ui^dTLr:;:/:^;:. . ...  h.n. 

„  it  c.n,e  about  that  .11  the  k""*^  --^/'J  ;";^^Lent  lawyer, 

^.:i-r:j::i"on:et«Ln:ieX^^ 

man,  and  a  fourth  a  prominent  grain  merehant. 

^  .   ™„i,a.  (1160  (»0>  iin.l  Ihul  <l>e  balance  lud  to 

acts  wne  alike.  «"«  ""■'■  '"■"•I''  "T.tl-lrTl.l"  to  the  rarrful  elaboration  ot 
m.'e  ot  NOW  York.  (The^  >-"  ""^''."^.^i'^Se  H.mlltoa.)  Many  o.  th. 
,h.t  mo.t  able  of  all  Am.rle.o  ""'"'^^^/^^^'^^ „a  ,„  tb.  pre.ent  -Baaka. 
provUlon.  ot  th«»  .epara'e  act.  »""?"„„,  amerenee :  that,  itamely.  wWob 
Aol;  but  In  one  point  tber.  "  », '"""f";".',  „„»  ,h,„  .a.  no  wearily  tor 
previa-  tor  eeearln,  the  elreula  Ion-     At   that  tm  ^^   ^^^^^^   ^^^  ^^„,j 

dreulatlon  at  all.  the  only  '^'ll"'""  ^^^^  "oln  o'  hand.  The  la.l  proyl-lo" 
;^:.r»e''„Sr«rrn«..rLThr.r  holder.  »..  no  better  Caln,  .-,  » 
than  the  d*po«itor«. 


MY  EXPERIENCES  OF   BAXKIXG  IN   CANADA.        MS 

Ihi.  point  tell  of  the  ex|KTki,ce  we  Imd  with  them.  The  kwver  w»  « 
jJ.o.t  rcp^etaW..  „,„n    „„H  .,«.edily  «„,l,..r.J  „  ^^  eonnection  „b„„l 

h..   br„„eh.     B„l   ,„   I...  ,h,„  .i,  „„.t ,eturn.-„,  we  c.ll   the 

.t»teu,ent.  .ent  hy  br.nehe.  to  the  head  offiee-<«„t.i„ed  ,„  „„„v  mi,. 
t.kei  that  the  ea,hier  sent  n>e  up  one  «fternoon  to  examine  hi,  book,. 
They  were  ,n  a  iH-rfeot  la^gle.  and  it  t™,!.  „,e  all  night,  literallv,  to 
.lr..ghten  them  o„t.  It  wa,  about  ,ix  „'el«.k  in  the  morning  befor'e  the 
l..k  wa,  «n„hed,  and  I  had  to  leave  at  .even  to  return  to  town.  The 
agent,  "■  cour,,.,  wa,  ebangrd  at  eu-T;  but  a,  lawyer,  he  eontinued  to  be 
our  eonhdintial  „dvi,er  in  the  town,  and  rendered  most  valuable  .erviee 
to  the  bank. 

Our  exiKrienee  with  the  ,heriir  wa,  of  a  somewhat  ,imilar  ehar- 
acter.  but  on  a  far  more  extended  ,eale.  He  had  gathered  quite  a  good 
bo,me.,  about  the  oftiee,  and  hi,  return,  and  statement,  were  aut 
order,  ,o  far  a,  outward  appearance.  Vent.  But  at  the  end  of  a  year 
It  wa,  deemed  desirable  to  have  the  braneh  in,peeted.  The  work  "wa, 
undertaken  by  the  president,  who  took  me  with  him  a,  an  aeeountant  to 
examine  the  book,  and  ea.h.  while  he  attended  to  the  di«x.unt,  and  loan, 
Ihe  ca,h  appeared  to  be  all  right;  but  the  book,  did  not  bnlanee.  I 
■pent  the  day  in  vainly  endeavoring  to  find  a  plaee  where  a  eorreet  bal- 
ance  could  be  ,truek,  but  could  find  none.  It  wa,  now  evident  that  a  eon- 
..derable  amount  of  examination  wa,  before  me,  and  the  pnsident  re- 
turned home.  The  upshot  of  the  affair  wa,  that  it  took  me  ,ix  week,  of 
con  muous  labor,  both  in  bank  hour,  and  long  after,  before  the  book, 
eoud  be  ,tra,gl,tened  out,  some  of  them  having  practically  to  be  re- 
written from  the  beginning.  Of  co„r,e  the  ag.nt  wa,  changed  at  once, 
and  the  braneh  placed  m  charge  of  a  young  man  recen.lv  arrived  from 
Scotland  He  had  a  good  bank  training  there,  and  wa,  altogether  one 
of  the  elevcrest  men  I  ever  met  in  the  hanking  sphere 

In  the  branch  of  which  the  agent  was  a  merchant  it  wa,  found  that 
large  advance,  were  being  made  to  hi,  own  firm,  a  state  of  thing,  that 
It  wa,  utterly  impossible  to  continue.  Business  bv  that  time  had  become 
very  cloudy  oM  difficult  everywhere;  and  it  wa,  thought  on  the  whole 
lie«t  to  close  this  branch  altogether. 

SrR.iioinEKiKo  OtT  A  BH^Nrn. 

The  branch  placed  under  the  charge  of  a  eountrv  gentleman  very 
speedily  did  a  flourishing  hu.sine,s;  and  as  he  had  had  some  commercial 
education,  there  was  never  anything  wrong  with  hi,  books  or  cash  He 
wa.  a  man  of  popular  mai..ier,,  of  the  "Hail  fellow,  well-met"  style 
ready  and  willing  to  accommodate  borrower,  of  all  ,ort,  and  conditioM* 
and  speedily  did  by  for  the  largest  bu,ine„  of  any  of  our  branelie.  He' 
made  large  profits,  and  for  a  time  it  seemed  as  if  we  were  to  be  con- 
gratulated on  having  secured  so  active  and  enterprising  a  manager 

But  after  a  year  or  two,  the  fears  of  Ihe  cashier  were  aroused  bv  the 


BANKING    AND    COMMERCE. 


S34 

„t«o«iin.,y  nun,be,  of  renew,,,  '-;»' ^  P-'^f .'^ti^"  Tt. 
Corre.ponde„ec  followed,  and  «"° "^  '"^^  "«™'.,„^^^^^^^^  fell  to 

sent  t„  .ueeeed  hin,,  and  .g.m  »"°'h"  '"  J  "'  '  a3  ,hi.  I  »v  .ome- 
„.y  lot,  not  of  book.  thi.  time   >-»'  °"'-' ^'^  „  f^^'^^,  «uh  .he  ,e- 

rj  iLe,:::  ;:rof^!;:::M:i:3: ...  .u- «.  m,  .... 

™.hier  rapidly  de>..oped.  W^,^;";'^  .."^dmonTfew  aeeo„L 
„e„  in  the  grain,  «°";  •"\"^':,  'if  ;J"„f  the  largest  of  .he,c  al»> 
of  importing  merehan...     A  »l>are  o  ^^  ^^^ 

fell  to  our  lot:  and  wa.  very  P'°«'°"" /° ''Xkholder,.  and  deelared 
end  of  whieh  we  reported  good  profit,  to  the  .loonnoia 

„  good  dividend.  ,857  1  another  step  wa.  taken.    There  had 

But  at  .hi.  mee..ng  CJu'.v.' 8' '■)»"»"  V  ^^^  ^^^  _^,^ 

been  a  good  deal  of  frie.ion  .n  '^''^■'^^^^'^"^„„,  de.ern>ined  .0 
,„e„...  And  .he  lal.er,  who  had  .he  l^'-';  °'  ^  ^,  ,„.,  ^,,„,. 
put  an  end  to  it  by  dropping  o„t  ^"' J'  '^  ,°V;,„  J„ember  what  . 
?-he  proposal  -"te*  'm-n-e  ^^m^^^^^^^^  ^^  ^^^  ,,.„,, 

stormy  meeting  ensued.     Bf    ''^  P™„^  ,     ,„„d  by  ot  .er.  that  had 

Lru.°;ttd::irtt.r;:::t;ro.pe^t.v  - «-  ban. 

Bevbuuon  op  1857. 
Shortl.  after  this  the  revulsion  of  ,«57«  tran.pired  in  Canada,  «^- 

Canada,  and   pro.lrel.d  '>"'°«••'^„^'•I  ,;,,„„  of  a  Trust  Compam'.     Cl.ioa.o 

:  j^r^.rro,;rTra.o°tn^"^'rx ., ,.. »... «. ..»-  .■■2 

""1,  .a.  whUe  .W.  period  »'  ""'7'°"  T*.'  ^.^7  r^Iri^'no^ac?™™.. 

■■.™all  Pl.ce.  a  (e«  ".""  *•""■*  "/fiS',  „p"n  a  branch  t»«..  .nd  that  he 
,h.l  the  b«nk  would  P"''"'"''  *""  ' 'L^„?„  ,,..  o(  ooome.  merely  entered 
,o.ld\lv.  me  ohnrse  ot  It.    ,™1.  """^"""w"",.,  I  would  like  to  tran.poct 

Zi^to'^.lve  m.  an  "PP""""''/./!;^  «l,n  a-  «'"«"'*  ""°  "";  "I  T  Sir 
mV-elf  and  tamlly  to  ,uoh  a  '";»"*''  "'„    „„.     owlnt    to   the  «««'""'''' 

£-:  z"p.rr.Ct  t.rs.:;w::£  t:%^„^TJ'.zT.r^T::t: 
H^r:r^er^-.^^f~S"v^-.s?'<y'^.  p 

1,  tnture.  had  my  lot  heen  o«.t  '""'_  .        ,,„   y^„    wh.-n.    »•   Genn.l 

'  With   »'--£^:,'r''S."'h^.dT„''rpel;..rext.n^,ve  loan,  on  w.t.hou.. 

rrp':rw°rm":drtrem"m.  to «».  .^- 


1 


MY  EXPERIENCES  OF   BANKING  IN   CANADA         333 

mg  with  terrible  .ey,rity  upon  Ont.rio.  The  hnrve.t  wa,  bad.  X|on,v 
became  tight.  There  wa.  no  panic;  but  ,  steady  bearing  down  tba't 
crnahed  men  wjth  the  irre.i,tible  force  of  an  iceberg  upon  an  imprisoned 
ship.  The  fulle,t  force  of  the  revul.ion  wa.  felt  in  Toronto.  Our  cus- 
tomer, began  to  fail.  To  the  president  and  cashier  came  the  constantly 
repeated  and  weary  task  of  interviewing  customer,  in  difficulties.  To  me 
lei  the  laborious  making  out  of  long  list,  of  protested  bills,  and  writing 
of  letter,  requesting  payment,  or  threatening  suit.  We  had  a  portion  of  the 
«^unl  of  the  largest  wholeaale  house  i::  the  country.  They  struggi,  d 
hard;  but  faded  at  last,  and  nearly  all  tl,.  ir  p.-,per  went  to  protest  It 
was  years  before  this  wa,  all  settled  up;  and  Ins  after  endle,.  interview, 
and  correspondence;  taking  security  and  giving  time  to  some,  using  short, 
.harpand  dec.sive  measure,  with  others-a  weari,omc  time  indeed  that 
dragged  on  tor  year.,  during  which  the  .ickening  bn.ine,,  of  making 
more  and  more  provi.ion  for  bad  and  doubtful  debts  had  to  be  gone 
through  perhdically.  Every  year  seemed  worse  than  the  last;  and  when 
it  wa.  go,ng  to  end,  none  of  u.  could  tell.  Harvest,  were  continually 
bad  in  Ontario,  and  so  long  as  that  continued  there  was  little  hope  In 
some  of  the  streets  of  Toronto  every  other  store  seemed  to  be  to  l.f 
and^for  myself  I  almost  despaired  of  what  was  to  become  of  my  growing 

Montreal  was  not  nearly  so  much  alTccted  as  Toronto.  The  Grand 
Trunk  Railway  had  brought  about  a  great  diversion  of  bn.ine..  in  it. 
favor,  formerly  d..ne  in  Toronto.  And  there  had  never  been  any  of  the 
wild  .peculation  in  lands  that  had  .wept  over  Upper  Canada  Me  an 
epidemic.  But  Toronto  wa,  struck  with  a  tornado.  A  prominent  Mont- 
real merchant,  well  known  to  me,  who  did  a  large  busine..  with  that 
city,  declared  to  a  friend  about  that  time  (1858)  that  there  were  not 
three  solvent  men  left  in  the  city-,  gros,  exaggeration  of  cour.e-but 
well  reflecting  the  view,  of  one  who  was  a  creditor  of  too  many  insolvent 
estate,  in  the  Western  country. 

..,?"'!"«/"  "■"  ''"^  «"'  '-»"''  Md  bravely  on.  The  ship  wa.  in 
skiilul  hand.,  and  they  steered  her  wisely  through  the  long  period  of 
troubled  waters.  Many  of  our  customers,  too,  held  up  bravelv,  and 
there  were  some  lines  of  business  that  were  not  much  alTectcd  by  the 
hard  times.  We  managed  to  make  our  dividend  every  year,  but  that  wa. 
all.  All  ejtra  profits  were  swept  remorselessly  into  the  gulf  of  "Bad 
and  Doubtful  Debts,"  which  is  the  dread  of  all  banker,  in  such  time.. 
But  the  bunk  was  never  in  the  slightest  trouble.  .Available  resource, 
were  always  sufficient.  And  .0  we  went  on,  meeting  every  day's  emer- 
gencies a.  they  arose,  hoping  and  waiting  for  better  times. 

They  came  at  length  in  the  shape  of  better  harvests.  But  before  that 
time  I  had  been  transferred  from  the  head  office  to  the  management  of 
the  branch  formerly  described  as  under  the  charge  of  a  countrv  gen- 
tleman. *    * 


CHAPTER  III- 
MY  BXPBMBKOM  AS  A  BEAMOH  MA»AO». 

T      „     4  K.»i>-H«»i.T£D  Sn«.iFF— An  Ihwltemt  Tbaoip 

_ApFO.NTED  CA.H.W  OF  TH.   B*N«  OF  To,0«TO. 

•■cl.„ni.h"  feeling  .n.ong,t  thorn  ^hey  .^-"od  P«^  ,„„„rtion.  of 
..,.do«cd  freely  for  »»«»"»*'■"•  J^'h*,"."  everybody  in  the  town 
'■■"  ^^'"■-  ""liVrpl'^r  To%"t"„  hTb::*!  of  .uch  l  ....of  en. 
««  on  ''"y^^'/'^lJXlti  plodded  on,  week  .fter  week,  .nd 
laiiglements  Kemed  hol^leM,  but  I   p  _  weeding  a 

.„o„th  after  month,  like  » --'^^;  "^^  "^  'TJ,^  p'^lUng  up  .ny  good 
chokod-up  garden.     My  chief  «""«y  ™  y,  ^  b„.i„e«  in  the 

plant,  along  with  the  weed.,  ^"  '^"J^^^Z.  really  the  re.pon.ible 
office.    The  <^'' '^^:'il;;/".rd  who  Iw  .cknowjge  hi.  obligation 

--;;.-tf:t=^t.™..rof^,nj^^^^ 
'^'.Sedrh  rire.r::at::  t. ...  uj^  ^  -«. 

Orioin  of  4  L.nN. 
Let  the  foUowing  be  taken  a.  a  .anjple  of  --"^^'^f  ^n^dt 
oi  the  „mcc.     A  note  '"^^'.^ll^'^J'^^rJ.^ZuUt^i.  (aU  I 

r\J^nirt^::^.^v^g^:£j^ 

aay  I  wa.  very  ha.^  nj..  »""  -^j/        -^k:  ^l  u-ineyF'      "WelV 

dot  tt-'^He-tnj::^  trwe'U,fgned  the  notc^I  brought  it^ 
fheTni  got  it  dLcountcd,  and  we  divided  the  money  between  n.^  Thai 
wa.  tte  orSn  of  the  note,  and  w.  have  been  carrying  it  on  ever  .ince. 


MY  EXPERIKNCES  AS  A  BRANCH  MANAGER.         3.17 

Of  luch  notu  the  bill  caie  of  the  office  .»»  full.  There  miiit  h.ve 
been  mm,  if  not  hundred!  of  them:  >nd  the  t»>k  of  inlerriewing  the 
lartiei,  correiponding  with  thtir,  in  m.ny  raiei  viing  «nd  getting  judg- 
ment agoinit  them,  wai  weariwnic  beyond  description.  For  manv  of  the 
partiei  to  the  notes  defended  the  suits  for  time,  and  put  us  to  heavy 
ripensc  for  law  costs. 

A  KiNft-Hr.tRTRD  SHEnirF. 

A  singular  discount  account  was  that  ctirriid  on  by  the  shcrilT  (not 
the  gentleman  mentioned  in  the  last  chapter)  a  most  respectable  man, 
and,  though  a  sheriff,  one  of  the  kindest-hearted  men  I  ever  knew.  In 
the  bad  years  succeeding  1837  he  had  had  numerous  judgments  to  en- 
force ag.iinst  fanners  in  the  district.  Relucl.int  to  sell  out  these  jiartiei, 
he  had,  in  many  cases,  taken  their  notes,  got  them  discounted  at  the  bank, 
and  so  nude  his  returns  to  the  Court,  holding  the  judgment  as  his  own 
security.  On  taking  charge  of  the  branch,  I  found  the  sheriff's  account 
to  be  as  large  as  a  wholesale  merchant's  who  bad  discounted  the  notes 
of  his  customers.  What  the  sheriff  was  doing  with  all  these  discounts,  I 
could  not,  at  first,  imagine,  for  I  had  never  seen  anrthing  of  the  hind  be- 
fore, nor  have  I  indeed  since.  However,  1  insisted'npon  a  liquidation  of 
the  account.  Fortunately,  the  times  had  begun  to  improve;  farmers  once 
more  had  good  crops  and  were  able  to  pay  their  indebtedness  and  release 
the  judgments  hanging  over  them.  The  sheriff's  discounts  were  there- 
fore all  closed  put  without  loss. 

An  Insolvent  Ta.tDEn. 
I  at  different,  however,  was  our  experience  in  another  ease. 
A  few  miles  from  the  town  a  manufacturing  firm  was  carrying  on 
an  extensive  business.  The  members  of  the  firm  were  of  the  class  de- 
scribed in  the  last  chapter.  But  instead  of  half-gentlcman  and  half- 
man-of-business,  they  could  belter  be  described  as  three-parts-gentle- 
man and  one-part  raan-of-bnsincss.  The  principal  partner  was  of  such 
aristocratic  manners  thai  he  was  often  spoken  of  in  the  town  as  the 
Duke.  He  had.  however,  some  little  knowledge  of  business.  The  other 
partner  was  a  younger  man.  a  member  ood  countv  family  in  Eng- 

land, who  had  come  out  to  Canada,  as  niun>  others  had  in  that  "neighbor- 
hood, largely  to  spend  his  time  in  fishing  and  shooting.  He  had  no 
knowledge  of  business  whatever. 

1'he  firm  kept  their  account  in  the  branch,  ond  had  large  advances. 
They  had  also  some  trade  bills,  drawn  against  consignments;  their 
method  of  business  being  to  ship  off  on  consignment  nearly  everything 
they  manufactured,  drawing  against  it  as  much  as  they  were  allowed  to 
do,  and  trust  to  Providence,  that  account  sales  would  Straighten  matters 
out.  Meantime,  they  had  a  good-natured  banker  to  deal  with,  who  never 
enqmred  particidnrly  wh.it  .idv-nwrs  wrre  wanlol  for,  or  what  tliev 
rested  on.   Accordingly,  they  made  up  deficiencies  by  continually  obtain- 


3,a  BASKING    AND    COMMERCE. 

lag  further  »<lv»nc.-..  Bui  .count  .,!«  .Mdom  .howrj  .ny  b.l.Ma 
dw:  in  f.rt.  thcv  w.«  not  kWod,  .«on.p.nltd  by  .  «dr.wlng  for 
„cl.n..llon.  The  flTrct  of  thl.  -tylc  of  bu.ln«.  n«y  bo  tojilrinrd.  It 
w..  c.rrled  on  ye.,  .ftcr  ye.r  .t  .  lo...  the  lo..  .bowing  ll«.lf  In  .  oon- 
•lantly  lncre.«lng  advance  account  at  the  branch.  ,         u  .       . 

It  n,u.t  not  ^  .u,.p«.rd  that  the  head  office  did  not  notice  what  w« 
Boinu  on.  Head  office  did.  and  wrote  repeated  letter,  of  remonrtranw. 
But  H.C  ..nnage,  wa.  one  of  the  nK,.t  plau.ible  men  th.t  "er  Il.ed,  «,d 
.ncceeded  ,nore  than  once  In  quieting  the  .pprehen.,on.  of  headquarter, 
and  per»u.Hdlng  then,  to  allow  bin.  to  go  on  advancing. 

But  »  cri.i.  came  at  la.t.  The  .dvanre.  at  thl,  branch  a,  a  whole  at 
length  became  s,riou.  enough  lo  be  a  drain  upon  ""  '7"""  ."•''?! 
bank  in  .uch  time,  a,  were  raging  over  ll.e  country.  A  .top  bad  to  be 
put  to  Ihem.  I  wa.  «cnt  down  to  make  r,  thorough  overhaul.ng  of  the 
bu.lne.«.  and  the  manager  .ent  in  hi.  re»ignal.on. 

On  examining  the  affair,  of  thl.  firm,  I  became  convmced  they  were 
i„.olvent.  But  they  .trcnnou.ly  denied  it.  alLpng  Ibal  P'oi'"  '»  »" 
tlon,  would  .how  that  they  could  pay  their  debt.,  at  any  rate.  The  late 
manage,  thought  «.  too.  On  tbi.  a,.umptio„  the  firm  .uhmltted  an  elab- 
"ate  «heme  for  the  continuance  of  advance.,  their  bu.lne..  to  be  under 

a  .ort  of  .upcvl.ion  of  the  bank  meanwhile.  

I  fo,w.,ded  thl.  to  head  office,  but  .tated  th.t  I  could  not  n^ommend 
It  My  comment  on  their  propoaal  wa.  that  I  could  .ee  no  end  to  It- 
no  p,„,pcH.t  of  eve,  paying  oif  .dvance.  by  that  ?«>«"•  °'"'";',^^ 
ducing  Aem.  Thee  wa.  certainly  a  ve,y  heavy  lo..  before  u.  If  they 
.,"pp?a.  But  I  wa,  convinced  that  to  let  them  go  on  would  make  ma.  er. 
Mor.e.  It  ».,  not  the  «.rt  of  account  to  be  'nur^d."  The  foundafon 
of  any  rational  nur.ing  p~ce..  i.  confidence  'nthe  bu.  ne..  abd.ty  of 
th.  men;  «.d  of  thl,  I  had  none.  They  .topped  thcefoee.  \\e  were 
p,.cticcllv  their  only  creditor.,  and  made  the  be.t  of  the,,  •»"••  »"* 
fhe  n^.olt  wa.  a  lo..  .ufficiently  la,ge  to  wipe  out  not  only  all  the  p^fit. 
we  h.d  made  out  of  Ibcl,  account,  but  a  la,ge  part  of  ^e  Pro«,  -ad. 
out  of  all  the  re.t  of  the  bu.lne,.  from  the  opening  of  the  branch,  a 
never-to-be-forgotten  Icon  of  the  con.enuenee,  of  a  good-natured  and 
■o-colled  ente,p,i.ing  .trie  of  conducting  bank  bu.lne„. 

Among,t  othe,  advance,  at  the  b,.nch  I    ound  .ome  of  con»'de,»bk 
amount,  that  had  been  made  on  account  of  a  local  ,a.lway.'     The,e  were 

~17.  «,,„e«io„  with  m.  r.ii-.y  *'""■••■,'-"' ';;!T"ru:  t""hr'"."5 

bidder;  of  course,  at  a  conBlderable  Iob*. 


MY  EXPEBIEXCKS  AS  A  BRANCH  MASAGEB.        .,,9 

town.     But  .,  wr  h.d  the  .,m.  n.mr.  in  ,hH,  own  .oconnl.,  o,  l„    b. 
«™„nt.  of  o„.„  p„„„.,   ™„„^.  ..  „        „n.lLr„     S! 

l,.„;^,7/.r  m""  "","'°"'J'  '"  'in-'dnK'  the  acco™.,  which  fo.^ 

lun,„ly    hey  wcr.  .bl=  to  do.     And  Ihi.  I  „„.,  „y,  ,h„  ,  „  ,,„  .Jj 
honorable  n>™,"  not  l„  M»,k  Antony'.  ..„.,,  b„t  In  W.illy.    ^ 

Vamt  or  SiroxD  MonroAon. 

■Bortg-gc.     ThI.  we  did,  .dding  thn.  to  onr  .dv.nce..        ' 

Bnt  when  we  brought  the  property  to  ..le,  we  ™„ld  «.,cely  gel  . 
b.d  at  «ny  price.     It  w«  withdrawn.     Put  „p  a„,i„    ,h.  S-fkiJ 

time  I  had  become  sick  of  tbe  whole  buaine..  of  winding  op  the  Ln'. 
e.tate,  and  concluded  to  let  the  saw-mill  go 

.ecurlty'Ttln."'  ""'  "'  ""'"■'  '"''  '^"  """"  "-^  "  «  ''"''  '•"-"  "" 

A  JuDGMiNT-Paoor  Endo«b««. 

Another  les,„„      The  man  above  named,  I  have  said,  was  dishonest 

~rb  m  "tT  """'  "*  1  "'""^  '"  "'"''■  -  determined  to 
eirC   1^7'     ^\"",'"'"  ''"'  "  daylight.     Hi.  counsel,  a  very 

£^^  ^  ^^iir^^-^Xrt^^:.^';:.:^..  :^ 
^9^jritnr::;^'rT^?rz;£s'rr^ 
r,f;'  o-f^irhea?;^. '°""''  "■'  -" ""'  -«'-  •""  -  "•■' "' 

county.     He  was  represented  to  be  abund.ntlv  good  for  the  amoCt  h! 

Arf!™-  7.  ,  .  !  '"  ""  •"°""'  P"!")-  At  length,  however  I 
iZ7TJ.:  ,'  "";  ^-I"-' ■■'"  '-I'-"  Getting  no  answeTi:  my 
Irtte,.,  I  one  day  went  over  to  hi.  farm,  .  con.ld«.Me  dlst«.«  ot; 


MO  BANKING   AND  COMUEBCE. 

found  him,  .  mu  well  on  In  ye.n,  tlttlnK  comfoFUMy  i.  Ih.  ll»ta» 
tdooi  of  the  fom-honfr,  which  wm  •  very  (ood  one.  The  f.n«  WM  m« 
of  the  Mrt  Ihnt  «bonndf  in  th.»  pnrt  of  Ontario,  rle.n,  cle.t,  well  fene«l, 
well  eulti..ted,  worth  .  good  de.l  of  moncT.  He  reeeKed  me  »efy 
coolly,  .nd  in  .niwer  lo  my  qnery  when  he  w>i  goinR  to  Uke  up  the  note. 
„n.we«d  th.t  he  w«.  not  (oing  lo  Uk.  it  „p  .t  .11.  , ""  .^  "^♦'""J' ^ 
this  due  f»nn  of  hi..-he  »id  it  w».  not  hi>  »l  .11.  It'  *•<!  "«^'  « 
».er  (»  Hi  ."".  •»■'  «"'  'f.  '»*"»"•  '"*  ""  '*"■'  ""  "I"'  '''  *" 

tBntidrmlioii  of  a  Mi.lriuixe  fat  Ufr.  

Thin  w..  .  revelotion.  indeed.  And  on  our  lolicitor  m.king  enquiry 
.t  the  Reijirtrv  office  of  the  county,  he  found  it  w..  true.  Moreorer,  on 
my  «kinir  whrther  .och  .  conTey.ncc  could  not  he  .et  ..ide,  conilde, ing 
hi.  endoriement;  he  g.ve  the  opinion  th.t  it  could  not,  the  «•"•">"•'•» 
being  .udicient.  Our  Kcorily,  therefore,  turned  out  to  be  worth  nothing. 
Thi.  ««•  mndc  .  deep  imprcMlon  on  me  in  rcUtion  to  the  v.lde  lo  be 
attached  to  endortrmrnti  in  plain  figure..  ,     ,     ,  ,_, 

By  the  time  th.t  two  ye.r.  h»d  el.p«d.  I  h.d  got  the  bmiincM  into 
.  f.irlv  ..t;.f«tory  .h.pe.  I  h.d  been  .cut  to  get  payment  of  •  »«|'- 
ber  of"  the  dl«-ounl  .econnt.  and  had  done  it;  making  raywlf  during 
the  p«H^..  very  unpopular  with  a  large  .eetion  of  the  •TT'^^^LJS*^ 
tried  to  be  reawnably  courteou.  during  the  whole  of  thi.  proceeding, 
con.idering  the  work  lo  be  done,  but  .1  time,  ".v  P-'i'-r^  ""•  ,  " 
tried.  On  one  occa.ion  »  money-lender  whom  we  dealt  with,  on  my  re- 
fu.lng  to  renew  ,o,ne  paper  for  him,  told  me  that  -e  mr,»l  coHcrl  .1  .1 
„.r  /ei«r,.'  "Very  good."  «id  I;  "my  Iei.ure  i.  (.re.l,-(».'  *"«';;•  " 
you  do  not  pav  bv  thi.  time  to-morrow,  you  will  have  to  look  out.  Me 
did  pay  up.  fo'r  he  knew  very  well  he  could  not  afford  to  be  .ued. 

AppoiNTin  C.KUmn  ol  the  Bask  op  Tobokto. 
Affr  clearing  out  the  ruhbUh,  there  w..  .  con.ider.hle  «•"»""-"' 
«iti,factorv  bu.ine..  at  the  branch;  and  I  .ettled  down  to  make  the  be.t 
of  it,  quite  expecting  to  .pend  the  re.t  of  n.y  day.  there.  For  of  pro- 
motion at  that  lime  there  appeared  little  '■'','"•«■  .^^^^  '"''!"  '"fc* 
vounger  man  than  my«-lf,  with  apparently  a  long  life  b'fo"  W">-  Jh. 
"manager  of  the  Montreal  Branch,  (for  we  had  by  Ih..  time  opened  In 
Montreal,  and  hi.  po.itlon  wa.  a  .uperior  one  to  mine)  wa.  al»  a  younger 
man  To  be  tran.ferred  to  any  other  branch  than  Montreal  would  be  no 
promotion  ol  .11.  The  way,  therefore,  «xmed  blocked.  However,  we 
were  rcMonablv  comfori.ble  at  home;  .nd  I  remember  once  mJcmg  . 
c.lcul.tion,  that  in  the  qnlet  w,y  in  which  we  were  Imng  I  could  .ave 
enough  J.  /^e»(,  year.,  at  any  rate,  to  "keep  the  wolf  from  the  door 
for  the  remainder  of  my  life.  witM-  three 

But  bow  lillle  can  we  Ke  the  progre..  of  event.!  W.thin  thr« 
monU,.  of  u.y  making  thi,  calculation  a  circ„m.lan«  »"""P";jf  "k^* 
Muenced  my  whole  fulore.  Our  much  deemrf  Prddent  d.ed  ,^- 
denly:  rapected  by  .11  who  had  ever  known  h.m.      It  wa.  then  con- 


MV  EXPERIEMES  AS  A  BHANCH  MANAGER.         3ti 

hl.Tw«  .„!,  ,7  'J"""-'  '•'"•)  '  '""■••d  'o  n,.v  ,.lo„i.l„.,.„, 
»p  to  Toronto  ,ml  „,„r„  ,„h  u™  „l«,„t  b„.l„c...     I  w,„t  „p.     Hr^ 

down  for  the  purp.»,.    And  on  l..>,„^   ,„  .pi^  ,„  ,,,.  „„,„•„,  „    ""! 
Inrily  I  had  iiiciirrrd,  »  hand*,.,.,    nr,  „,  Uii„„  „l  „l,i,  ...T.V  . 

by «.,  cn.,„™„..  w„eh  u  „„ .,,,  „.>.i,  ,H :;  .i„r  t  "• """ '- " 
i:^n.'oJ':rr:d:^"i,;'::vr:rt,';;  ;'-.'"r*=  -"-" 

»«•!..  and  qxlck,«„d,  a.  I  ^, ,  «i,h  i„  ,,,.  part  „f  „.y  ,,.„king  ^L, 


CHAPTER  ir. 

BXPMIENOBB     IH     HEAD     OFFICE     MAHAOBMEHT     « 
TOKOHTO. 

Banking. 
TVyf  Y  .ppoint^ent  to  th.  office  of  Chier  of  the  B»k  of  To«mto 

^^TTti^:^^^^^  -c.  of  .t.e^,»--'":^ 
^trc:^::rf::r^;^^r^;-^ 

whol...le  hou«.i  and  the.e,  in  the.r  turn   cou.d  J..  bu.,n«.  «.th 

^'2e=r£rSei^arnr^ 

,t  .„  --;e»r,   however  before  I^^^^^^^^^^  ^        „,   „ 

;^;;^:r,s:::;fo^r3.e^;:-i 
rrf.r.r;'rHr:^:uih^^^^^^^^^^ .» tho.  th.  w...- 

34: 


HEAD  OFFICE  MANAGEMENT  IN   TORONTO. 


.■)»3 


ErrccT.  OF  thi  Wak  is  thi  Cxited  Statm— P.iaaM  ox  Gold. 

Mjr  narrative  must  now  go  back  a  little. 

While  branch  manager  I  had  once  been  unexpectedly  .ummoned  to 
lake  the  ca.hier  .  duties  whilst  he  went  over  to  Scotland  for  a  holiday 

A  few  month,  before  this,  the  war  between  the  North  and  South  had 
broken  out,  and  Gold  had  shown  signs  of  going  to  a  premium.  Thi,  wa, 
a  »eriou,  matter  for  ,„;  as  we,  like  other  Canadian  bankers,  eould  not 
dVo.d  keeping  considerable  balances  of  money  in  New  York,  which  of 
course,  formed  part  of  our  reserve  cash.  The  premium  on  gold,  Ihere- 
nV^J,t  "  ™'  "°""  -'■'">  °  l™  of  "'"t  amount,  in  case  we 

distttd  h^T^V  ^^,"''""'  ''»•■""•  <•"  «°ing  ""ay  was  not  much 
disturbed  about  th,,  L,ke  most  other  person,  in  Canada  and  the  North, 
u.  supposed  that  the  war  would  soon  be  over,  and  American  currencv 
-^>ert  to  .ts  natural  position.  Gold  might  go  to  four  or  five  per  eeni 
last  lo";^.'-  '  *^'"'  *""'''  '"  ""^  "°"  "'  "•    And  it  iould  not 

,  net^T'f  r""  "Ji'"-"™'  •>■'  «»'e  me  for  management  in  his  absence, 
Zr^  ■»■"' not  disturb  myself  about  this  premium  on  gold,  ta 
let  the  balance  ,n  New  ^ork  go  on  accumulating,  ere,.  ,/■  ,kepr/„^„ 
'0..  ,0  (ea  per  ce»(.»     It  was  under  these  circumstances  I  took  chTr^ 

o.  ou"  ruLrca.'.o::,?-.'„ro';' a' ,.""•:  sir'.'','r"r"r  r*  ■"  "■-  "—«">" 

or  aallr  l„,.r..t|  .„a  ,„  „„.  the  .v,m.  Sat  rnnSenl,  7  T  "m  "  ™"" 
...  <.,»n.j  n.  New  rcrk,  opera,,,™  .„  1,  .„„  b«.°?1,e.;,  trlt""!^'" 
erallon.  but  .peculation.,  a.  ,.  h.d  ,ood  r...on  iK^r^^rZic  S^™  ,  "'"  °''" 
our  omcer.  became  ertargled  In  them.     Everv  "peratlm  I,  ih  '  '"  °"'  "" 

•ith  «,e  keeae-t  Interest  ,„  Wall  8tr"e,  Jnr.t^ct,"  ea  ^Z  Wh'er^'v"'"' 
suffered  a  reverse,  told  went  un-   if  thlnn  «-„™   ....  ,  "^"   *'"*  ^orth 

wen.  down;  and  -o  ™^:rLTn.'L,;''t'b"r'?,,:h"•u.•  i"e'e„TA".t'temof r''  '"i" 
by  Conarem  in  1S81  to  atop  thi.  .peculation  and  an  Lt  ...  ""'"■"  """  "»'''' 
ILLEQAI,  ,0  deal   In  ,old      Thi,   ...  on  ih^ ijnr    r  S"'"'    "»""«    " 

-  — t""-  '°'^""  ••- ' •»-  wr.hirte°n'  z:  ,j:^.:^'^^^ 

rea,rj.7„'„r'"rrnnirbrn?e."*;-r:,\^^°l^°Ur.n?r.d"'  ^'-'^'^  '• 
116.  In  (Wober  It  ...  137,  1„  March  i;"  After  twi  ,h.V  '  ?  ""  '""  "' 
no„.  uhtl,  the  b.ttl.  Of  O.,t,-.bor,!' ind  thlJar.  "„rvS„'r;;  ^"7-, 
Grant  on  the  same  day.  the  fourth  of  July.  U63  ?hl.  .ra  ,h.  I.!,  '"^  "'"•'"' 
126.  B«  It  ro.e  .».1„.  untl,  In  October  It  i-.,  158,  It.l.^TJ^ttXLJ"  '° 
Itiued  with  fluctuation.,  until  the  April  tolldna.  U  ,a,  then  70  ,„  S"' 
I!«l,  It  ro.e  to  1B3,  in  June  to  200     Then    the  .ct   m.tl.t    i,     m       ,"  "'"■ 

•Old  ..  .1.  ,..  p...ed.  within  ,en  da  "•,;t"e'r.art."", "';'».  "^'''.'n'S'o  "the^mb 
of  July  It  touched  the  hl,he„  point  du.lna  the  war.  n.mrlv  .,"  A,t,,  lljl 
her.  were  heavy  fluctuation..  In  September  It  w..  down  ,"  M  „  VcvemLr  ,!^ 
to  !67,  But  .M  thi.  time  General  (3rant  «a.  maklna  hi.  wav  tbro^,.h  ,h  .  "^ 
rible  battle,  of  th.  TVUderneu,  In  ,pl,e  of  ihr"  obborn  ,e.l.,.„°  .  ,T  '"; 
L.,,  until  ,.  became  apparent  that  fe  would  .oo^  be  a  "e  to  pif.mhif  fo^*e7To 
the  .outh  of  Richmond,  So  In  the  month  of  J.,r,.,ary.  IMS.  »oW  droppedTo  1»« 
and  In  Match  to  in.  Rlchm.ind  wo,  taken  on  the  3d  or  inrii  °'"*'  '°  "'• 
...  .«.     Oene„l  Lee  .urreodered  on  the  Sthr  b':t'th'f.  t;Tl:r,''^Z>Z  "b^'e" 


BANKING    AND    COMMERCE. 


S44 

.„d  «  conferred  .  «ood  deal  "l""'  ^'J"'^;;  „'^  ^  ^Ttro-lble  „«,- 
,hc  same  opinion  a,  the  "'••■"=  »;f/',:^^„l,rtro..hled  n,y.elf,  for  .. 
„lve.  much  abont  it.     I  w...  ho»e,er    »"  """^  '       „„  ,^-.1  „e  should 

Vork  and  invesU^a.,-  the  matter  on    he  'P-^ ^/"^^ent  Wreeia- 

Ihere  wa,  any  "»'"'"' '""'''°  ,7;j'war  >Jent  on,  «a,  not  gold  likely  to 
tion  of  our  An.er.can  funds.     If  the  war  ,  ^__^  j^^^, 

c„n.in..e  .0  rise,  and  our  balance  .n  N;'  ^"'"^  '»  *'  "one  wa,  naturally 
1   concluded  to  eon.ult   two  persons  on  "^«^-  „„  ,„„„„t, 

.H  able  -<• --".^r.Tc:r  ::^:  Ih^her  Z  Mr.  Charh, 
i?.'s"th!rs:l  had  then  left  the  Ban.  '^  ^^j:^:-"^^ 
„,„  for  himself  a^  a  pnvate^  ^»nj«;  >^ -^'^  I  ^,^  ^„„„,  „,  gold; 
answer.     He  sa.d,    ^ou  want  to  ^^^^  ^^  ,__^^^^^ 

and  whether  the  pren...  n.    s  hkely  to  .ner  ^^__^^  ____^  _ 

to  if  the  war  goes  on?     I  m.ght  'n'""'    '         .  ^       j     speaking 

he  can  give  you  a,  good  an  opm.on  as      l^J^'^tor  us  iew  York 

:^r  irs::t:/:^^  "^X'^-^t::^-  -  -  -■  - 

a„.„ -n.ea,  tor  JOM  only  '«■•<"»„  ,t«      TM.  WM  .1..  ">•>"•'  P"'"'-  "'"'  "  "f: 
„,»i..l»alrf.  wMch  »enl  BoM  "P  *°  ""■      '    ^^  „„  „,,   over.     But   m»nr   '•>"* 

ise9.    .»..   terriwo   -Black   >"■">">:.  "''"''I' .oX      tof.    PRICE    OPENMNO    AT 

150,  RISINO  AT  KOO>  TO  ISS,  »''•","'„  ml„„.™,  Attrr  IM..  >■«•  »'■" 
MIU.10XS.  ana  the  price  fw;""^, ,'„'„'  i",,",;'  „„  „„,.,  rtropp.c.  to  lOKC  I. 
y,.r.  the  prlre  BcHom  varied  ""'  """„■" '"^^  ,s72.  And  thu.  It  went  .n. 
Lcemhe,.  .871.  .nd  rfln,  lo  115  4  "'  f  P  .™'';',;  '„.,,  „„,„  ,„e  end;  Ite.vj 
,„ln,  nnd  Wllln,.  """"J  ,7  ,72  „  ,"  eo",e  "ef '  polltlo.1  or  natlenal  even., 
.peeulntloni  Bolrnr  on  all  .he  time  «.  .n.  .u  ^  ^^  ^^_^  ^^^  ^^^^^  ^^^,  ^j,  ,„  „;^. 
were  ndverse  or  o.her.l.e,  T^*"''  "'"  ,  „„„  exel.lnf  eour.e  ot  »  deprecl- 
Th„.  however.  •»'  '^  '•''  '"."T,;"  'XZ'  ?».tn  .o  U«,  and  .hence  1,  .te.d- 
„ed  c.rrency.  In  .he  *'"""."','..",  „„^f  „„re  re.umed, 
lly  here  down  on.ll  specie  paymen..  »"'  ""'^  er.l.odee  In  modern  llnonce.  dor- 
'^  Thu.  ended  one  o(  the  n,o..  „.r»..rdln.ri  "•''•""^'^  ';,„,,,  „„„  ,n,„  flue, 
in,  .he  -hole  o(  which  C.n.d.  remained  fm  ■ "  »  ««'°  ,   ^   „m   m 

."".lon.  ..rected  .he  hank   Into   who.,  eervl  .    I   .">■,    ou.n   y 
the   nex.  chapter. 


HEAD  OFFICE  MANAGEMENT  IN  TORONTO.         343 

lliJt  ii  perltctly  clear;  but  what  the  coiine  of  gold  will  be,  no  mortal 
men  can  tell."  While  I  waa  speaking  with  Mr.  Vail,  General  Anderson, 
who  had  so  well  defended  Fort  Sumter,  eame  in,  and  Mr.  Vail  introduced 
me  to  him.  I  appreciated  this,  for  I  had  sympathiaed  with  the  North 
from  the  beginning.  I  next  went  over  to  Mr.  Smlthers.  I  could  talk 
freely  with  him,  as  he  was  a  Canadian,  and  could  look  at  the  matter  from 
OUT  point  of  view.  My  principal  question  to  him  was  not  so  much  what 
he  thought  gold  might  rise  to,  but  whether  there  was  any  limit  to  the 
me  a(  allf  We  both  knew  very  well,  there  tvat  such  a  limit  in  the  case 
of  sterling  exclmnge;  that  is,  when  dealt  with  on  a  gold  basis.  Was  there 
any  such  limit  in  the  case  of  gold.^ 
He  said  he  could  see  no  such  limit. 

1  returned  to  Toronto,  communicated  what  I  had  heard  in  New  York, 
and  strongly  recommended  that  we  should  convert  a  considerable  part 
of  our  balance  into  gold,  for  fear  of  worse  happening.  It  would  cost  us 
a  good  deal  of  money,  but  there  was  no  sign  of  the  war  abating,  but 
e-ery  prospect  of  its  going  on  for  some  time;  and  if  the  war  went  on, 
it  was  certain  that  gold  would  continue  to  rise.  I  think  one  or  two 
members  of  the  board  considered  me  rather  presumptuous  in  giving  them 
advice  on  the  subject,  for  I  was  only  a  branch  manager,  of  second  rank, 
in  temporary  charge  there.  The  president,  I  think,  agreed  with  me,  and 
after  a  thorough  discussion  it  was  determined  to  convert  one-half  of  our 
currency  balance  into  gold,  and  leave  the  rest  to  the  course  of  events.  It 
cost  us  a  large  amount  of  money,  but  at  any  rate,  we  had  got  a  consider- 
able sum  safe  "out  of  the  fire"  and  available,  if  we  wanted  it.  We  placed 
the  gold  tu  the  credit  of  our  Gold  Account;  for  gold  accounts  had  then 
become  common  between  Canadian  banks  and  New  York,  and  our  deal- 
ings thereafter  with  the  Bank  of  Commerce  were  in  this  gold  account. 
The  currency  balance  remaining,  we  held  on  to,  until  the  resumption  of 
specie   payments    brought  matters   round  many   long  years   afterward. 

But  to  resume; 

My  position  at  head  office  being  a  subordinate  one,  1  continued  dis- 
charging tliis  kind  of  duty  for  several  years.  The  Bonk  of  Toronto 
was  prospering,  and  no  events  worth  recording  transpired  unUl  the  long 
sickness  and  death  of  the  cashier  placed  upon  mc  a  much  larger  shaii 
of  actual  management  than  before. 

His  dealli  indeed  was  a  serious  loss.  He  occupied  by  his  mairiage  a 
very  high  social  position;  he  was  a  thoroughly  trained  banker,  energetic 
in  character,  rather  sanguine  in  temperameul;  -nore  ready  to  undertake 
risks  than  I  ever  was,  but  with  n  most  remarkable  foculty  of  making  the 
best  of  doubtful  and  difficult  accounts.  I  remember  saying  to  the  presi- 
dent afterwards,  that  I  could  not  pretend  to  such  abilitv  as  the  late 
cashier  had  of  fellinf  o„(  of  trouble;  all  I  could  lay  claim  to.  possibly, 
was  the  faculty  of  not  griling  info  i(.  When  he  had  passed  away,  I  fell 
like  a  son  who  :ud  lost  a  father;  for  though  he  was  younger  than  I  in 
years,  I  always  looked  upon  him  as  far  beyond  me  in  bankiiif;  ability. 


BASKING    AND    COMMERCE. 


S46 

To  .>.<-ceod  hin.  ..  pre.i<ient,  the  bo«rd  elected  the  senior  .»'"."  of 

„„e!?  :::iMe.t  -ni"r.r^ndra'^e:otre:3tr^ 

H,    hud   lone     I*"-'     "    director    of     the     nnnK    oi     ^'^'^      ,    .        ,. 

"d  :;:ed ;:  t^e,, .  .o.  ,torie.  of  the  „.v  thi„g» — -"X  jir.. 

*•    ""'   '."';  r1  ,';„:»  thTirfe  rlfor   .    to  fdL  i„  guiding  the 

irot-T^jri:;^' "'o"f  ..t  .h.  the  b..  of^^p^r -^: 

,a  do,  »nd  ^-/^:;:^X  rlTltL'tho:;  Ich  ,„.nger 
,he  busme,s  p»rtm    of     -  P  =  '^  i„f„„„.,i„„  „nd  experience,  thor- 

::>s;r:^r:;;:::Cine.^...het.^^^^ 
^I'Sr:::^!^- r  ?"J^;  ::::t:^::i;  ":^:^e  c^ued  i;  -inner 

lircle"  of  tlic  board.  ^^  remaining 

.„e;;;'vr:f^r'ra:'Tl;::tf  tl^  Ba„U  „fVont„,  in  act„a. 
management. 

Tboubles  of  the  BAfK  OF  Upper  C.is.tn*. 
Dnrini  the«  vers  .ever.l  very  notable  event,  happened,  by  far  the 

Of  other  '-P^''-',— 't.  .  have  aw"'dy  spoken.  It  had  at  one 
I'"".  eTt  *  "pu^tioLnul  it,  credit  w.»  quite  equal  to  that  of  the 
TV  f  Moi  „al  f"  many  veara  the  account  of  the  Government  waa 
f:. Mth  r  oting  ,e"  ral  proaperoua  year,  preceding  tl.  Crimean 
Wr  Tt  td  made  ve'  large  pro.lt,.  But  barring  w.a  little  underatood 
,:  rrr.da  at  that  time,  and  it  made  the  cgreg.on.  mistake  of 
■;  V"  „e,rthe  Iwc  of  it,  ,urplu.  among*  it,  stockholder,.  And 
dividing  nearly  '^'„  ."ri   L„,muiating   in    it,    hook,   ma„e,    of    loan,. 

Spline  wl.  Z.  a-i  it,  government  of  bran.:^  notonously  weak.     A 

"»"  «"  '"^'l,'^r^„:lr11^1Z:  .n  .am™.  >"  ..-  Tl...,,  navy.     Am.- 

"^  "°""°^^^   ?  K^  SoTto  sail  a  ship,   bi-t  i-li.  be 
HTS'dEr^TS^AN^No  ABorr  srcH  MATTr:B.  a.  rHESE:- 


HEAD  OFnCE  MANAGESfE.NT   IX   TORONTO.  3,7 

.hort  time  „fter  J  „„„„„.H  oh.rgo  in  T„ro.,ta,  „„  i„  .ending  an  in.pector 
1  J","  I'Tu  "'"  """"'"■'  -■'  '""■  "'  '*'■«»"«'  '-f-i"«  to  receive 
of  183,  the  Governmen  »re„„nl  «,»  rcnoved.  Thi,  ,erio„,lv  alTeeled 
he  pre..,^.  „f  ,l,e  bank,  „„d  injured  i„  eredit.  It  ,.,  known  ,7^ 
henvly  ,n  del.t  l„  it.  „g.,„«  i„  I.,„J„„,  „„d  ,h„.   „j  ,  i„"  i"i"j'°„'^ 

ehange  o.  „,„n„genH.nt.  B„t  »„•  hank  was  too'  f„  ^  ,„  ^rettore^ 
to  .oundne,,  by  any  cl.ange  wbat.ver;  >„  af,,.,  „  ,Vw  Tj,  o(  ttnittk   « 

Of  the,.,  the  Bank  of  Toronto  had  beeome  one  of  the  ^o^  rojn  „'' 
and  quite  a  heavy  r„„  by  holder,  of  .mall  note,  took  plaee 

Our  eounter  wa,  thronged  all  da,  long,  for  several  dav,.  bv  ,.eo„l,- 
presenting  note,  for  redemption ;  mostly  small  notes.  We  met  th  .  'iT  1 
usua  way  by  piling  up  g„,d  on  the  eounter.  and  detailing  TspLtl  tel 
to  attend  to  the  applieants.  M„„y  „f  ,he,e,  when  Ihev  «w  tTp  le,  o" 
go  d.  went  away  satisfied:  other,  presented  their  nolej.  and  go.  q  k^v 
paid.  The  distnrbanee  abated  in  a  dav  or  two,  no  deposit,  wer^luh 
drawn,       j  ,^     ^„,,  „„„„„,  „^  ^,_,  ^^  ■  ^''^Jl^'^^;^ 

many  of  our  ei«tomers  eould  have  drawn  out  bv  a  single  eheek      The 

The  affair,  of  the  defunet  hank  proved  to  l,e  in  verv  bod  shape  The 
whole  eapital  wa,  l„,t  and  in  addition  a  good  deal  of  loss  wa,  'ujed 
by  depositor,  and  noteholders.    A  eertain  portion  of  the  Ia,l  fell  ,1.™,  H,e 

'rre'ne;'"',!"'^"""'  '"'  ""'"'"  r"  "'  ""  "''""'™  '"' '>.° -."n;Tf 
.urrenej.   the  eousequenee,   of   whieh   survive  to   thi,   day." 

Stoppacf  or-  riir  Commekci.m  B.ink. 
The  next  affair  to  whieh  I  will  revert  was  t,.e  stoppage  of  the  Com- 
mereial  Bank  of  Canada.     Thi,  institution  wa,  i„  farltU-r  ,haA  tZ 
the^regoing;  for  on  being  wound  i,p  it  paid  i„  noteholder,  and  de- 

ver,v   crumy   to  ouUtlderft;  but   "Hall  fellow    «-p11  ™.,-    ,       . V     ,  **■      ^^    *"" 

the.,.  .  „i,.kn„,„  a„„„  ,„  Vh,  01  ".M  to'hta  ol  i  '™"1«".  One  o( 
w."  ».  .1,0  tank  „™,r.  •■TOM.^'i-'  S^KT  TOU  8FI  ^  ^^tl"';  r"""" 
AND  [lORSES.   AND  PAT  TOIR  DEBTS^  ■''''    ^ "'"    '^'^"Rt.U-.E 


f„  BANKING    AND    COMMERCE. 

,M,.it<.r.  in  full,  »na  returned  one-third  of  the  e»pit.l  to  it.  .tockholderi. 

But  it  l.."d  „nfortn„.tely  got  it«lf  entangled  in  he.vy  "d.»nee. 'o  the 

De  r    ,  .nd  Milw.nl.ee  H.ilw.y  C„n,p„ny   and  aft.r  « jerd.^  h  d  be» 
i„j  :.    .,t  the  end  of  n  protracted  and  eoslly  litigation.  IM 

?::d;  r  »    IpaLd'tl-at  »  dmln'of  depo.it,  set  in.  whiel.  at  length 
Ipelled  it  to  cLe  it,  d.«.r,.     Tin,  even,  ere.led    ">>»;;"-  ™''™"*' 

far  exeeeding  that  of  l.>    fomer  oeea,ion.     It  developed,  .ndeed,  .n.o  . 
n^kte  panic.     For  one  or  two  day,  our  -""ter  in  Toronto  w.,b^ 

™e«d  a,  tfore,  but  by  a  n,ore  exeitable  crowd,  and  what  wa,  far jnor. 
r^u..  a  eon,id  rahle  drain  of  dcpo,it,  .ct  in.  Any  one  of  ''--«»"« 
ake  „"ore  out  of  tl,e  bank  in  a  minute  than  the  who  c  exe.ted  crowd  of 
:':hoM:.r.  wouW  in  an  hour.  While  the  panic  prevailed,  '-;-/' 

danncr  of  one  or  two  other  bank,  closing  their  door,.     «t  were  in  « 
."rr;;,i.ion  onr»elve,,  and  determined  to  make  coinnioi,  eau.c  with 

these  weaker  banks,  a,  wc  knew  they  were  ,o..nd.     «e  theretorc   kept 

tppjng  then,  with  gold,  a,  these  exciting  day,  ;.a.sed  on,  "''"'Zu 
arT    npplics  bv  special  messenger  from  Montreal,  niglit  after  nigh  . 

A  larii  p^rt  of  the 'gold  -c  paid  away  went  into  the  Dank  "f  M°"""'; 

a,  did  a^  most  of  the  money  withdrawn  from  the  other  banks.  The 
F  nance  1^nr..er  in  Ottawa  was  appealed  to,  but  he  refused  to  intervene; 
ler  which  a  telegram  arrived  from  some  friends  of  the  .^""J;;"*  '"^/'^ 
in  Montreal,  advising  the  Toronto  banks  to  suspend  specie  payment,  A 
eonsoTation  of  bank  director,  wa.  held  in  the  mid.t  of  the  excitement,  o 
o^rid  r  thi,  pro,«.al.  I  wa,  not  present  at  the  con,ult.tion,  being  only 
a  c^mp'ralivelv  young  banker,  but  when  informed  by  the  president  of 
^hTwa  goini  on,  I  protcted  and  remon.trated  in  the  ,tronge.t  man- 
:'r  aga  nst'^ufh  a  step :  and  declared  that  rather  than  do  that,  w.  ought 
Z  pav  out  the  la.t  dollar  of  gold  we  had.  The  next  day  was  Sunday 
whreh"  afforded  a  breathing  time;  and  on  Monday  morning,  to  onr  great 
Tel  ef,  we  learned  that  the  Premier,  Sir  John  M.edonald,  overriding  the 
advic^  of  his  Finance  Minialer,  had  determined  to  intervene,  «■>*  P"'  « 
ttp  to  the  panic.  He  gave  orders  that  every  C-'"-  House  and  Po. 
Office  in  Ontario  ,hould  he  telegraphed  to.  directing  them  to  take  the 
note,  of  .all  the  bank,  whose  door,  were  open.  On  this  becoming  known 
"he  panic  ceased  a.  once;  and.  politic,  apart,  I  have  always  considered 
that  the  country  owed  a  deep  debt  of  gratitude  to  Sir  John  for  hi, 
conduct  on  tliat  occasion. 

This  excitement  over,  matter,  liegan  to  punuc  t  icr  usual  ™"">-  T^^ 
eountrv  wa,  p,os,a:rou.  ■,  and  business  on  the  whole,  socnd  The  hank. 
I  whom  we  had  loaned  the  gold,  «Hm  repaid  it,  and  our  bu.inc.s  went 
on  a.  ouietlv  a,  ever.  A,  to  the  Commercial  Bank,  alter  ,orae  excited 
nueUnSroi-  ..ockholder..  pro,»,al,  were  made  by  two  of  the  Montreal 
bank,  for  the  purchase  of  its  whole  assets.  A  sort  of  rivalry  arose  be- 
iween  the  Bank  of  Montreal  and  the  Merchant,'  Bank  on  Ihi,  occasion. 
One  bid  after  another  was  made,  and  finally  the  offer  of  the  Merchant, 
„„„|.  „...,,  ai«.p;e,i      This  offer  was  to  assume  all  the  liabilities  of  the 


HEAD  OFFICE  MANAGEMENT  IV  TORONTO.         Slj) 

Commercinl  Bunk,  and  to  pay  the  jtorkholdcrs  33  1-3  per  cent,  of  their 
Bhnres  in  the  utock  of  the  Merchnntu'  Bnnk.  It  would  hove  lieen  f.nr  bet- 
ter for  the  stoekliolders  of  the  Commereiiil  Bank  to  have  taken  the  offer 
of  the  Bank  of  Montreal:  and  I  lulieve  it  would  have  been  better  for  the 
Merchants'  Bank  to  have  lind  nothing  to  do  with  it.  For  nubaequent  in- 
«ide  experience  led  me  to  the  eonehision  that  the  Merchants'  Bank  lost  a 
(rood  deal  of  money  by  it.  But  the  |iiircliase  enabled  that  bank,  which 
then  had  no  branches  at  nil,  to  establish  itself  with  a  business  ready-made 
to  ts  hand,  in  numbers  of  towns  and  cities  in  Ontario ;  and  laid  the  founda- 
tion of  that  widely  citended  husi...-»s  with  which  I  had  to  deal  in  sub- 
tequenl  years.  The  liquidation  of  the  old  assets  of  the  Conmiercial  Bank 
caused  a  prodigious  amount  of  labor  to  fall  ulwn  the  officers  of  the  Mer- 
chants' Bank :  and  along  with  a  considerable  accession  of  good  business 
it  also  .acquired  a  large  amoimt  that  turned  out  doubtful  and  bad,  partly 
it  may  he  said,  by  reason  of  the  "hard  times'  that  subsequently  followed. 


Oroani7.\tion  of  Xkw  Banks. 

During  the  period  of  my  service  in  Toronto,  and  while  gold  was  at 
»  premium,  the  General  Manager  of  the  Bnnk  of  Montreal,  for  reasons 
of  haulr  finance,  determined  on  a  (wlicy  of  eontroction  of  discounts 
among  all  its  Ontario  offices.  The  hank  transferred  the  money  to  New 
York,  and  made  large  profits  out  of  it.  The  pressure  was  severely  fell 
for  a  time,  but  it  resulted  in  the  ottering  to  the  Bank  of  Toronto  of  n 
large  amount  of  new  business.  Most  of  the  accounts  olfercd  were  ac- 
cepted; and  we  thereby  took  our  share  in  relieving  the  pressure  upon  the 
commercial  community.  This  policy  had.  however,  verv  important  con- 
sequences, such  as  could  scarcely  have  been  foreseen. 

The  Bank  of  Montreal,  in  its  Toronto  office,  was  under  the  local 
direction  of  a  very  prominent  memWr  of  the  mercantile  community. 
When  a  policy  of  contraction  was  determined  upon  and  continued,  he  con- 
ceived the  idea  of  obtaining  n  Charter  for  a  new  hank.  He  had  no 
difficulty  in  carrying  out  the  idea,  as  he  was  inflnential  in  Parlia- 
ment, as  well  as  in  banking.  The  charter  was  obtained,  the  stock  sub- 
scribed, an  iuHuential  board  of  directors  formed,  and  thus  was  launched 
into  being  The  Canadian  Bsnk  of  Commeb.  k.  This  hank  in  the  course 
of  a  few  years  became  the  largist  bank  in  Ontario  in  respect  to  both 
eapitol  and  business.  It  also  .ibsorhed  after  a  lime  one  of  the  older 
bunks  in  Ontario,  the  Gore  Bank  in  Hamilton.  During  the  last  few 
years  it  has  still  further  enlarged  its  operations  bv  lahingovcr  the  Bank 
of  British  Columbia  with  its  branches  on  the  P.acific  coast  from  Victoria 
to  San  Iraucisco,  and  als,i  one  of  the  hanks  of  the  Maritime  Provinces 
with  lis  headquarters  in  Halifax,  and  branches  extending  all  oier  Nova 
Scotia.  It  had  not  been  long  established  when  it  opened  an  office  in 
J.ondon,  F.ngland.  and  al«>  in  New  \  „rk.  The  London  office  ceased  to 
do  business  (or  some  yejirs.  hut  as  the  Bank  of  British  Columbia  had  it. 


ISO  BANKING    AND   COMMERCE. 

bcadqnartrrt  in   London,  the   Bink  of  Commerce   astumed   iti  buiineti 
there,  and  ha«  t'vcr  since  hern  represented  In  the  MetropolU. 


After  some  time  it  was  rumored  that  the  vice-president  of  the  Bank 
of  Commerre  was  ;i!so  about  to  apply  to  Parliament  for  a  charter,  and 
eatablisli  another  bais'c  Me  was  also  n  man  of  wealth  and  position,  and 
easily  obtained  n  clixer,  ami  lubsoriptions  of  a  sufficient  amount.  A 
body  of  influential  -.i''-  •  j(athered  around  him.  and  thus  was  launched  the 
Dominion  Bank.  M  known  to  be  one  of  the  most  successful  and  pros- 
perous of  Cnnadiait  banking  institutitwis. 

Another  director  of  the  Bank  of  Commerce  followed  upon  the  same 
path  but  in  a  somewhat  different  luannrr.  There  had  long  existed  in  St. 
Catherines,  a  prosperous  town  iit  the  Niagara  District  of  Ontario,  a  bank 
called  the  Niugwra  District  Bank.  It  had  been  on  the  whole  well  man- 
aged. Its  directors  were  influential  men.  It  had  brnnehefl  in  the  western 
peninsula  of  Ontario.  Sonic  conferences  and  consultations  took  place 
between  its  directors  and  certain  men  of  wealth  in  Toronto,  which  re- 
sulted in  the  establishment  of  the  Imperial  Bank,  with  its  headquarters 
in  that  city.  This  bank  absorbed  the  business  and  branches  of  the 
Niagara  District  Bank;  and  the  St.  Catherines  office,  after  being  the  head 
ofKce  of  the  former  bank,  beeanie  a  brnneh  of  the  Imperial  Bank.  This 
bank  bI«o  has  hnd  a  career  of  uninterrupted  prosperity,  and  after  pay-' 
ing  continuously  good  dividends  has  accumulated,  like  the  last,  a  rest 
nearly  equal  to  its  capital.  There  thus  sprang  out  of  this  policy  of  con- 
traction on  the  part  of  the  Bank  of  Montreal  three  of  the  most  pros- 
perous and  flourishing  of  the  hanks  of  Canada. 

A  similar  career  of  success,  however,  did  not  attend  another  institt:- 
tion  established  about  the  same  time.  The  Federal  Bank,  after  a  check- 
ered career,  finally  ceased  to  exist,  but  wound  up  its  affairs  without  loss. 
Most  of  its  Inisiness  was  taken  over  by  a  new  organisation  called  the 
Trader's  Bank  which  has  been  doing  a  quiet  business  for  many  years. 
Another  of  the  banks  which  obtained  charters  at  the  time  when  charters 
were  so  readily  granted  by  Parliament,  was  originally  named  the  St. 
Lawrence  Bank.  It  was  net,  however,  well  managed  in  the  first  instauec, 
and  was  nearly  coming  to  a  stop.  It  was  then  taken  up  by  an  able  officer 
of  another  bank;  a  man  who  had  been  well  trained  in  banking;  and  under 
another  name,  that  of  the  Standard,  it  hns  had  a  prosperous  career  ever 
since. 

I  was  cashier  of  the  Bank  of  Toronto,  while  all  these  changes  were 
going  on,  quietly  pursuing  my  own  business  and  maintaining  friendly 
relations  with  the  managers  and  directors  of  these  institutions. 


Unfortunate  SpEcri.ATioNs  of  a  Manager. 

During  tho  time  thnt  the  war  before  referred  to  was  going  on,  we  had  a 
very  unpleasant  experience  with  one  of  nnr  managers,  whs  had  nnfortu- 


HEAD  OFFICE  MANAGEMENT   IN   TORONTO.  aai 

nntciy  horofiK  connectrd  with  a  number  of  Southern  gentlemen,  nnd  hnd 
imbibed  their  viewa  tin  to  the  cniine  of  (fold.  They  were  fully  pcrvuaded 
that  ((old  would  rise  to  a  fnr  higher  figure  than  it  had  ever  attaiutd.  He 
M-aa  induced  to  jniir  in  n  little  speculation;  and  nn  in  often  the  vnnc,  this 
wai  the  beginning  of  n  troublous  eoune  which  finally  nided  in  liin  ruin. 
Speculationi  went  on  increming.  A  broker  wan  concerned  in  them  aUo. 
Lftrge  advances  came  to  be  made,  but  they  wt.-re  ko  cnrried  on  as  to  be 
concealed  for  a  tinu-.  At  length,  however,  the  great  cventi  which  brought 
the  war  to  a  clost  took  place.  Oold  rajiidly  fell.  It  soon  becaim-  cxident 
that  the  r;  .If  wJis  up.  Tin-  eonctahnent  could  be  carried  on  no  longer. 
It  fell  to  my  lot  to  handle  this  unpleasant  busineim,  and  I  procetded  to 
Montreal  for  the  purpose.  Investigation  speedily  revealed  the  slate  of 
matters.  This  was  followed  by  the  manager's  resignation  and  with- 
drawal from  the  service.  I  remained  in  Montreal  some  time  to  attend  to 
the  winding  up  of  the  affair,  taking  actual  charge  of  the  branch,  until  a 
new  manager  was  appointed,  becoming  thereby  very  familiar  with  the 
bniinesi  of  Montreal  and  acquiring  in  experirnce  in  exchange  operations 
ifuch  At  was  not  to  be  had  in  Toronto. 


RrriREHENT  FROM   BaN'KINO. 

After  the  agitation  to  preserve  the  circulation  of  the  bank  (sec  next 
chapter),  I  felt  a  great  reaction  setting  in.  And  a  conviction  grew  upon 
me  that  I  ought  in  the  course  of  a  few  years  to  devote  the  rest  of  ray 
life  to  other  than  monetary  pursuits.  I  had  been  active  for  years  in  the 
work  of  the  Church  to  which  I  belonged,  and  also  in  the  vm  k  of  the 
Young  Men's  Christian  Association,  and  looked  forward  to  a  time  when 
the  burden  of  the  bank  could  be  laid  down  and  my  whole  time  given  to 
such  work  as  this.  It  was  many  years  before  the  opportunity  came,  but 
it  did  come,  or  seemed  to  come,  some  years  afterwards.  In  the  year  1871 
a  period  of  depression  set  in  over  the  tinancial  world,  and  the  full  force 
cf  it  was  felt  in  Canada.  The  lumber  and  timber  interests  were  affected 
most  severely;  and  the  dcpreskion  in  this  line  continued  year  after  year, 
as  is  common  in  a  trade  where  businesv  moves  in  cycles.  Still  the  busi- 
ness rf  the  bank  went  on  with  a  fair  amount  of  prosperity.  The  average 
of  losses  increased,  but  with  the  vigilance  and  co-operation  of  a  good 
staff  of  managers,  we  were  able  to  prevent  anything  really  serious  de- 
veloping. The  times,  however,  were  depressing,  and  the  pressure  on  my 
own  mind  was  constautly  increasing.  At  length  about  the  middle  of  1876 
I  conceived  that  I  might  honorably  lay  the  burden  down  by  the  end  of 
the  year.  In  fact,  I  began  to  feel  that  I  was  getting  on  in  years,  and 
ought  to  relinqi'ish  the  charge  of  the  bank  to  a  younger  man.  At  that 
lime,  80  fj-r  as  personal  feelirg  goes,  it  seemed  to  me  that  I  was  older 
than  J  was  when  I  retired  from,  the  Merchants'  Bank  twentv-five 
veartf  afterwards. 

The  board  allowed  me  to  retire  when  they  saw  that  my  mind  was 


Mt 


BANKING   AND   COMMERCE. 


made  up.  though  I  belicre  thej  thought  I  would  hare  done  wifely  to 
fttick  to  my  own  batlnew. 

But  thrr  presented  me  with  a  terrice  of  plate,  on  which  lorae  wordi 
were  engrarnl,  which  I  have  alwajri  eatremed  tenfold  more  than  the 
iiWcr  itself,  valuable  though  it  was. 

After  speaking  of  the  serrices  I  had  rtnderrd  to  the  bank,  during  my 
tenure  of  office,  they  went  on  to  say  that  the  presentatitm  was  made : 

"To  give  them  alao  the  opportunity  of  referring  to  the  prominent  and 
active  part  he  hae  taken  in  the  tegi»fation  reapeeiing  Banking,  and  to 
record  their  opinion  that  to  him  the  Bankt  onre  eeveral  of  their  moat 
valuable  privilege*." 

The  last  words  are  perhaps  too  flattering,  inasmuch  as  others  took  a 
very  influential  part  in  the  work;  but  there  was  undoubtedly,  at  one  time, 
a  crisis,  as  is  related  In  the  next  chapter,  when  the  action  I  took  probably 
siiTed  the  whole  position. 


CHAPTER  r. 

nooTUTiom  with  thi  aoTBamaiiT  KKmoniro 

OIBODLATION. 

Cmci'MsTAXCKi  or  the  CavMw— Orru.iTiax  to  Goteknuikt  Paf.« 
Mo!t,T-P«opo.Ai  TO  Sicru  Bank  .\ot.i  .v  Govmniunt  Boxoi 
— Sucirie  OijicTloKi— Niw  Law  RuifECTixo  Cibcuiation— 
Guat  Sahtt  or  THE  Ban*  Xorti. 

'T'HIS  experimot  it  rd.ltd  In  r.thn  full  drtail,  .,  It  concern,  the 
M.      development   of  that   C.nndi.n   M-.tem   of  circul.llon   which    l> 
admitted  to  be  one  of  the  bnt  in  the  world.     It  al«>  traci-i  the 
origin  of  the  prnent  Canadian  Banking  Act. 

By  far  the  nHMt  Important  evcnU  that  traniplred  daring  the  |>eriod 
referred  to  In  the  last  chapter  were  negotlatloni  with  the  Omemment 
respecting  the  circulation  of  the  hanks. 

It  has  already  been  stated  that  a  certain  loss  had  fallen  upon  all  the 
holders  of  Bank  of  Upper  Canada  note.,  at  the  time  of  its  failure  The 
lo.s  to  any  individual  or  firm  was  of  no  great  importance,  but  it  was 
suBcient  to  create  a  desire  for  a  belter  secured  currenev.  The  Finance 
Minister  of  the  day,  .Mr.  Gait,  afterwards  Sir  Alexonde;  Gait  and  High 
Commi,.ioner  of  Canada  to  England,  had  long  held,  a.  a  matter  of 
theory,  that  all  circulating  note,  of  any  country  .hoold  he  i..oed  by  the 
Government.  This  theory  was  held  hy  a  certain  school  of  pol'itlcJ 
economists,  of  whom  he  was  one.  and  the  failure  of  the  I'pper  Canada 
Bank  seemed  to  afford  a  favorable  opportunitv  for  pulling  the  theory 
into  practice  He  matured,  therefore,  an  elaborate  .chemc  for  the  .ul^ 
stitutlon  of  Government  note,  for  the  circulating  note,  of  the  bank,  of 
tanada.     This  was  before  the  Confederation  of  the  Province. 

The  Canada  of  that  lime  con.i.led  .imply  of  the  Province,  of  Ontario 
«.d  Quebec,  bat  then  called  Upper  and  Lower  Canada.  Mr.  Galf. 
scheme  «a.  approved  by  hi.  colleague.,  but  bifore  bringing  in  a  bill 
lo  give  .1  effect,  he  consulted  variou.  memher.  of  the  banking  inlereat 
ivilh  regard  to  it.  " 

CinerMSTANCKS   OF   THK    Coi'XTRV. 

To  enable  the  reader  lo  understand  the  bearing  of  such  a  measure  on 
the  finance,  of  the  Government,  the  circumstance,  of  the  country  wlU 
need  lo  be  considered.  Canada,  at  thai  lime  (about  1865)  wa.  .till  feei- 
ng the  effect  of  the  terrible  revuNion  of  1857.  I  had  alwavs  thought 
that  It  would  lake  from  eight  to  ten  year,  for  the  country 'to  recover 


MKIOCOPr  nSOUITION  TflST  cHAirr 

(ANSI  and  ISO  TEST  CHAKT  No.  2) 


1.0 


I.I 


ifi 


■a  la    12.2 


12.0 


/APPLIED  HVHGE    In. 


716)  4B1  -  0300  -  Pnent 


3,1  BASKING   AND    COMMERCE. 

lated  to  make  patriotic  ears  tmgle  ».th  »  •»"^-  f"  ^""^.^  .  t.„k 
Sr';  °a/pr.ct»u7in,po..ible  to  place  any  --  ^"t  ttemtt t 
Finance  Minister  ™.M  date  '"Z^' .  J' T^.' 'l';„t  «ith  it.  Canadian 

wmmm 

"ok  c  ^t^l   or  thereabo'ut,,  wa,  lent  to  the  Governu,ent;  not  a  bad 

a  ooint  when  it  wa.  not  convenient  for  the  bank  to  inereaje  .t.  advance. 
Such  were  "he  condition,  prevailing  at  the  time  when  the  "heme  wa. 
^bmitTed  by  which  bank  circulation  would  be  aboli.hed,  and  replaced 
by  the  note,  of  the  Government. 

OpPOtlTION  TO   GOVKBNMKNT   P»«H   MoNIT. 

The  Bank  of  Montreal  gave  in  it,  adhcion  at  once  a.  might  be 
expected  The  adoption  of  the  .cheme  would  not  neccita  e  any  ma- 
terW  change  in  the  cour.e  of  it.  bu.ine,.,  and  the  very  able  financer 
I"  „  atTt.  head,  ,.w,  in  it.  working,  large  -Pf-'^f '  °^ '""Ttl! 
the  profit,  of  the  bank.  But  it  wa.  far  otherwi.e  wrth  the  Te.t  of  the 
bankl  and  particularly  with  tho,e  carrying  on  the  ^^^••"^^^^l 
Canada  I  gave  careful  .tudy  to  the  .cheme  a,  it  would  affect  the  Bank 
^f  To^nto.  and  became  convinced  that  to  adopt  it  wouU  compel  u,  to 
make Tuch  a  curtailment  of  our  di«ount.,  a.  would  cau.e  .er,„u. 
■  Iturbance  and  emb.rr„,mcnt  to  the  whole  circle  of  our  eu,t^n,e,.^ 
And  not  onlv  thi,;  it  would  «riou.ly  cripple  our  power  of  .....t,ng  in 
fw  movement  of  the  crop,  which  wa.  then,  even  more  than  now,  th. 
'olauon  "  .omuch  of  t'he  b„.inc„  of  Canada.    The  Bank  of  Toronto 


NEGOTIATIONS   nESPECTING  CIRCULATION-.  333 

had  then  I  think,  a  I»rgcr  share  of  the  grain  and  lumber  burine,.  of 
Ontario,  than  any  other  bank;  and  I  wa.  filled  with  alarm  at  the  eon- 
scqucnce,  of  ,„cl.  an  Ael  to  us.  if  adopted  by  Parliament.  Having  be- 
conje  thus  eomineed,  I  obtained  penni^ion  from  the  board  to  go  down 
In  Ottawa  to  confer  with  the  Finanee  Minister  on  the  subjert.  Mr 
Gall  received  mc  «ry  courteously,  for  he  well  knew  the  position  of  the 
bank  I  represented.     I  carefully  abstained  from  any  discussion  of  the 

o  ttlliL  T"r"uV'""""''  '"  "■•■  """  ''"°"'"«  *''at  in  a  matter 
of  that  k.nd  I  should  be  no  match  for  a  man  of  Mr.  Galfs  capacity. 
He  w,->s,  perhaps,  the  most  brilliant  of  our  many  able  Finance  Ministeri; 
.nd  almost  the  equal  of  Gladstone  in  the  ability  with  which  he  discussed 
hnanca    questions  m  the  House.     I,  therefore,  confined  mvself  purely 

iterests  of  .°.  ""  7'  '1°  """""'  °''  ""  »«"-""'»'  "d  Inhering 
uteres  s  of  the  country.     I   pointed  out  that  the  measure  would  also 

of  Upper  Canada:  that  such  curtailment  would  inevitably  bring  about 
embarrassment,  and  failures;  that  the  country  was  onlv  just  "covering 
from  the  shock  of  the  revulsion  of  .837  and  could  not -bear  any  f  ur  ief 
d  s  urbance.  I  further  said  that  quite  apart  from  the  immediL  effe 
of  the  measure,  .t  would  cripple  for  all  time  the  power  of  the  bank,  to 
provide  the  mean,  of  moving  the  crop,  in  the  fall,  and  carrying  lumLring 
operations  through  the  winter.  }"gium<xiing 

ensurf"  T'f  ""  «r"'  "'"li"  "'  •"'  "■'■^  °f  "«^  conversation,  which 
ensued.     I  found,  however,  that  he  was  full  of  the  ide.  of  „!,..•• 

doubtedly  the  measure  he  proposed  would  have  elTeeted  that  eid  at 
least.  So  I  spent  much  time  in  the  library  of  the  House  „f  r 
endeavoring  .0  think  out  some  plan  for  JielMhe  GoUment  r*' 
oirt  damaging  the  bank,.  I  wa,  a  young  manager  at  that  time  „d 
ound  it  a  very  difficult  task,  in  fact,  it  w„  beyond  me  But  onT'thtof 
I  did  understand,  vi..,  the  bearing  of  hi.  «,henie  upon  the  busLTs  of  *! 
country.  That  it  would  inflict  inc.lcnlable  damage,  I  wa,  "^if  *,! 
wa.  easy  to  reply  that  the  Bank  of  Montreal  was^^dy  to  f^^T  with 
the  scheme,  but  the  position  of  the  Bank  of  Montreal  wa,  as  d  ffcTelt 

iZa^Cdo"  T^:' ""  '"•'  -'  ^"«>"-^ '-  ^^.^>^>o/:r:i 

The  final  point  to  which  I  directed  our  conversation  wa,  a  stnin, 
appeal  10  make  the  measure  optional  and  not  compulsory  ' 

I   have  no  doubt  that  other  Western  bankers   l„.n.,.i,f   ■  a 
bear  on  Mr.  Gait   (though  I  never  met  any  of  themfn  awr/" 
.V  en  the  bill  was  brought  before  P.rliament'we  fid  to  0?,;^'.'  I" 
(.faction,  that  thi,  pn,vision  wa.  expressly  included 

The   only   bank  that   fell  in   with   the   measure   wa.   the   Bank   of 

relinquished.    For  several  year,,  it  i..„ed  Government  notes  exclusively 


S5G 


BANKING    AND   COMMERCE. 


Tlie  bill  provided  for  considerable  reseri'es  of  gold  to  be  kept  again§t 
these  notes,  nnd  Comniissioners  were  appointed,  of  whom  I  was  one,  to 
make  periodical  examinations  of  the  gold  on  hand.  The  reser^T  in 
Toronto  was  in  the  vaults  of  the  Bank  of  Montreal;  and,  odd  as  it 
seemed,  another  bank  manager  and  myself  visited  the  bank  monthly, 
entered  the  safe,  overhauled  and  counted  the  gold  exactly  as  one  of  their 
own  inspectors  would  have  done. 

The  Western  banks  did  not  like  these  Government  nott-s,  though  they 
M-ere  legal  tender.  But  Mr.  King  wii<i  determined  that  these  banks  should 
carry  a  portion  of  the  issue,  and  took  characteristic  measures  to  bring  it 
r.bout.  The  Bank  of  Toronto  was  strong  enough  to  stand  out  for  a  time. 
But,  later  on,  1  recommended  that  we  should  fall  in,  as  we  could  do  it 
without  detriment.     And  this  we  did.  '' 

Some  time  after  the  passing  of  the  act  it  was  rumored  that  the  Com- 
mercial Bank  of  Canada  was  about  to  fall  in  with  its  provisions  and  re- 
linquish its  circulation.  I  could  not  believe  it.  It  would  have  been  a 
suicidal  step  for  thorn  to  take.  And  as  it  was  never  taken,  the  rumor  was 
probably  unfounded. 


The   Attempt  to  Introduce   the    National   Bank   System   of   the 
United  States  Into  Canada. 

Matters  remained  in  this  position  for  several  years.  Meantime  Mr. 
Gait  had  resigned  and  been  succeeded  by  Mr.  Rose  of  Montreal,  ijnder 
his  auspices  another  attempt  and  of  a  far  more  determined  character, 
was  made  by  the  Government  to  change  the  basis  of  the  circulation.  At 
that  time  the  system  of  the  United  States  was  in  universal  favor,  and  so 
far  as  the  providing  of  a  safe  currency  for  the  whole  country  was  con- 
cerned, it  undoubtedly  deserved  it.  But  specie  payments  were  still 
suspended,  and  many  inconveniences  and  drawbacks  which  have  since 
developed  themselves  were  entirely  unknown.  It  cannot  be  wondered  at 
therefore,  that  an  idea  began  to  prevail  with  the  members  of  the  Govern- 
ment, that  the  system  might  l)e  introduced  with  advantage  into  Canada. 
II  was  based,  as  has  been  said,  upon  the  holding  of  Government  securi- 
ties by  every  bank  for  the  full  amount  of  its  circulation.  Now  the  Gov- 
ernment of  Canada  had  already  experienced  great  difficulty  in  the  trou- 
blous times  just  referred  to,  of  flouting  more  of  its  bonds  in  England.  It 
would  therefore,  be  of  great  advantoge  if  the  whole  bank  circulation 
were  required  to  be  based  on  Government  securities;  for  in  that  case, 
every  existing  bank  would  be  compelled  to  make  large  purchases  of 
debentures;  and  every  new  bank  organized  in  the  country  would  fall 
under  the  same  rule.  Immense  sums  of  money  (immense  for  those  days, 
though  they  would  not  be  called  such  now)  would  thus  flow  into  the 
cofl^ers  of  the  Government,  and  relieve  the  Finance  Minister  from  embar- 
rassment. The  idea  was  extremely  attractive ;  but  like  some  other 
theories,  it  omitted  to  take  into  account  the  most  dominant  factor  of  the 


NEGOTIATIOXS   RESPFXTING  CIHCUI.ATIOX.  357 

position,  vi«.,  how  to  obtain  the  niomy  to  purchsse  such  nn  cnormoul 
fcniount  of  Government  lirbenliircs  as  would  be  required.  For  it  would 
be  absurd  to  suppose  that  the  Government  would  furnish  them  on  credit. 
The  lienring  of  this,  however,  was  not  well  understood  at  first. 

The  bill  to  eHeet  this  objecl  was  prepared  with  great  skill,  and  wai 
brought  forward  by  the  Finance  .Minister  as  a  Government  measure. 
This  rendered  it  all  the  more  dangerous;  for  the  Ciovernment,  with  Sir 
John  .Mocdonald  at  its  head,  had  a  large  majority  both  in  the  House  of 
Commons  and  in  the  .Senate. 

It  was  incumbent  upon  me,  as  cashier  of  the  Bank  of  Toronto  to 
carefully  study  the  measure,  vhich  I  did,  and  the  conclusion  I  came  to 
was  this,  that  whilst  it  would  not  affect  our  profits  to  anvlhing  like  the 
degree  which  Mr.  Galfs  measure  would  have  done,  it  would  have  pre- 
cisely the  same  elTect  in  compelling  us  to  reduce  our  discounts  to  such 
an  extent  as  to  cause  very  serious  embarrassment  to  our  customers. 
Under  its  provisions,  we  would  be  compelled  to  buy  Government  securi- 
iies  (and  that  at  an  enhanced  price,  becanse  of  the  new  demand),  not 
simply  for  the  whole  amonnt  of  our  capital,  but  for  the  whole  amount 
oi  our  circulation  at  its  highest  point;  and  also  in  addition,  for  the 
amount  of  the  notes,  with  which  we  would  carry  on  our  daily  business. 
This  was  an  alanning  prospect  indeed,  as  I  pointed  out  to  the"  directors; 
for  we  would  have  to  get  the  money  from  our  customers.  They  fully 
agreed  that  to  compel  our  customers  to  pay  up  such  an  amount  would 
cause  great  distress  and  bring  about  numerous  failures.  In  fact,  it  would 
produce  exactly  the  condition  of  which  I  had  spoken  to  Mr.  Gait.  If  it 
was  suggested  that  our  customers  could  get  accommodation  at  other 
banks,  the  reply  obviously  was,  that  other  banks  would  be  in  the  same 
position  a^  ourselves,  with  one  exception.  I  therefore  ommended  the 
members  of  the  board  to  do  their  utmost  to  oppose  measure  as  in- 

dividuals, and  to  bring  every  influence  in  their  power  10  bear  upon  the 
Government  to  induce  them  to  abandon  it.  I  did  this,  being  well  aware 
that  some  of  them  were  influential  supporters  of  the  Government.  It 
was  a  ease,  I  said,  for  putting  mere  party  considerations  aside,  and  look- 
ing at  matters  from  a  purely  commercial  and  financial  standpoint. 

m  appeared  that  other  banks  were  coming  to  the  same  con- 
cIl  not  only  in  Ontario,  but  in  Quebec  and  the  Maritime  Provinces. 

Cor.  .  mdenee  and  conversations  only  deepened  ihe  impression  of  the 
disastrous  consequences  that  the  measure  would  entail,  if  forced  upon  us 
All  the  banks  in  Western  Canada  were  a  unit  in  this  opinion,  as  well  as 
all  the  banks  in  the  Maritime  Provinces.  Nearly  all  the  banks  with  their 
headquarters  in  the  province  of  Quebec,  had  this  opinion  also.  And  as 
Parliament  was  then  sitting  it  was  determined  to  hold  a  conference  of 
the  banks  that  held  these  views,  in  Ottawa. 

I  attended  this  conference,  practically  at  the  risk  of  my  life.  I  was 
lying  in  bed,  slowly  recovering  from  an  attack  of  malarial  fever,  when 
the  day  for  the  conference  was  approaching.     An  influential  friend,  a 


S.IS 


BANKING    AND    COMMERCE. 


Senator  and  a  strong  supporter  of  the  Government,  who,  however,  shared 
our  views  on  this  question,  offered  ta  provide  a  sixcial  car  on  the  Grand 
Trunk  to  lake  me  down  to  Ottawa.  I  then  determined  to  go,  tvute  qui 
coute.  My  wift<  accompanied  me  as  a  nurse.  On  arriving  at  Ottawa,  I 
dragged  myself  up  to  the  Committee  room  of  the  House  of  Commons, 
where  the  meeting  was  to  be  held,  and  found  a  number  of  influential 
ftentlenien  a^^sontblcd,  many  of  them  Senators  or  Members  of  Parlia- 
ment; all  of  them  b.-mk  directors. 

There  were  also  a  few  managers  present.  The  chair  was  taken  by 
the  Hon.  Mr,  Ferrier  of  Montreal,  a  local  director  of  the  Bank  of 
British  North  America.  But  the  meeting  was  \-ery  much  it  "sixes  and 
ievens."  In  was  soon  evident  that  very  few  of  the  gentl?men  had  given 
much  attention  to  the  question;  there  was  also  a  division  amongst  them 
as  to  how  tar  some  of  them  would  go  in  opposing  what  was  distinctly  a 
Government  measure.  It  was  hard  for  n  politician  then^  just  as  it  is 
now,  to  separate  from  his  party;  and  the  sentiment  was  strongly  ex- 
pressed by  some,  both  then  and  subsequently,  that  though  it  might  be  a 
bad  measure,  they  could  not  see  their  way  to  oppose  it  in  Parliament, 
isome  of  the  gentlemen,  however,  were  Senators,  and  therefore,  much 
more  independent  than  the-  Members  of  the  lower  House.  The  upshot 
of  the  meeting  was,  that  it  was  desirable  to  form  an  association;  the 
object  being  to  preserve  the  free  circulation  of  the  banks.  Of  this 
association  1  was  requested  to  act  as  secretary.  The  organization  was 
very  informal;  no  president  was  appointed,  no  funds  subscribed,  and  no 
rules  adopted.  The  only  thing  that  was  thoroughly  determined  on  was 
to  bring  about,  if  possible,  a  withdrawal  of  the  measure,  for,  of  its 
defeat,  :f  it  came  to  a  real  Parliamentary  contest,  we  had  but  little  hope. 
But  the  strongest  supporters  of  the  Government  were  willing  to  use  their 
private  influence  for  withdrawal. 

Not  a  word  of  \hw  was  communieiited  to  the  press,  and  not  &  line  of 
our  proceedings  as  an  association  ever  appeared  in  the  news  of  t!ie  day. 
But  some  of  us  did  endeavor,  on  our  own  responsibility,  to  influence  pub* 
lie  opinion  through  the  pres^,  as  will  be  seen.  The  banks  of  Nova  Scotia 
had  deputed  Mr.  T'cter  Jack,  cashier  of  the  People's  Bank,  to  represent 
them  in  this  mntter.  He  tvas  a  well-educated  banker,  and  had  studied 
the  question  thoroughly.  And  l>eing  a  man  of  much  intellectual  force, 
he  carried  great  weight  in  the  conferences  we  had  on  the  subject.  But 
]iis  especial  forte  was  in  interviewing  Members  of  Parliament,  a  faculty 
that  I  could  lay  little  pretention  to.  1  could,  and  did,  write  in  the  press, 
and  address  meetings  and  conferences.  But  when  it  came  to  interviewing 
private  individuals,  my  tongue  usutilly  failed  me.  The  President  of  the 
Tiank  of  New  Brunswick,  afterwards  raised  to  the  Senate  as  the  Hon. 
Mr.  Lewin,  a  man  of  great  influence  in  the  city  of  St.  John,  N,  B.,  was 
also  active  iTi  our  canwe,  and  rendered  most  valuable  service. 

We  all  had  our  duties  as  managers  or  directors  to  attend  to,  and  the 
business  of  the  banks  was  then  just  as  engrossing  as  it  is  now.     It  was 


SEGOTIATIOXS   RESPECTING  C  IBCLLATIOX. 


339 


only  snalchea  of  time,  sn  to  uppok,  lliat  practical  lunken  could  give  to 
the  agitation  of  thii  quest-'^n. 

Very  little  waa  said  al  jut  it  at  our  hoard  meetingj,  and  even  when 
ub«cnt  in  Ottawa,  as  I  frequently  was,  I  took  care  to  keep  firm  hold 
of  the  bukiness  of  the  bank  by  corres|>ondenee.  Fortunately  for  us,  the 
Government  also  had  other  things  to  attend  to,  as  well  as  this  currency 
measure.  To  Sir  .lohn  Macdimald.  it  was  practically  a  side-issue  in  the 
great  currtnt  of  political  events.  There  was  no  political  principle  in- 
volved in  it.  as  he  knew  verj  wrll.  And  when  one  and  another  of  his 
supporters  took  a  different  view  from  the  Finance  .Minister,  it  did  not 
greatly  trouble  him.  He  had  acted  inde|>endently  of  his  Finance  Min- 
ister nnce  lyfore,  and  we  knew  very  will  lie  would  do  so  again,  if  circum- 
stances called  for  it.  He  would  not,  therefore,  let  Icm  much  of  the  time 
of  Parliament  be  taken  up  with  this  measure.  It  »a.»  not  therefore 
pressed  through  as  a  great  |iolitical  measure  would  have  been.  We, 
therefore,  had  breathing  lime,  and  op|iortunity  of  pursuing  our  object  in 
our  own  way. 

Not  that  we  were  allowed  to  do  this  uninterruptedly.  The  able  and 
astute  General  Manager  of  the  Ban!:  of  .Montreal  was  then  at  the  height 
of  h.a  great  fame.  He  was  a  perfect  genius  in  finance,  and  was  man- 
aging the  bank  magnificently,  making  immense  profits,  paying  large  divi- 
dends, adding  heavy  sums  to  the  rest,  and  increasing  the  power  and  in- 
duencc  of  the  bonk  day  by  d,ay.  And  an  inlluential  board  of  directors 
was  with  him. 

He  had  studied  the  measure  as  carefully  as  we  had;  indeed,  there 
was  no  doubt  the  Fin.ance  Minister  had  consulted  him  in  preparing  it; 
«•  was  natural  he  should,  the  bunk  of  Montreal  being  the  bankers  of  the 
Government.  The  measure,  had  it  passed,  would  have  had  great  ad- 
advantages  for  the  Bunk  of  .Montreal,  both  present  and  prospective.  It 
•would  have  compelled  many  merchants  and  men  of  business  to  apply 
for  accommodation  to  the  bank,  and  to  transfer  their  accounts  to  it.  In 
fact,  it  would  have  gone  further.  The  banks  themselves  would,  in  many 
instances,  have  been  put  into  such  a  position,  that  they  could  not  carry 
through  their  fall  and  winter  business  without  rediscounting.  And  that 
must  be  largely  with  the  Bank  of  Montreal.  This  would  have  raised 
the  bank  in  many  respects  to  the  position  occupied  by  the  Bank  of  Eng- 
land in  England. 

It  cannot  be  wondered  nl  then  that  Mr.  King  lent  his  utmost  influ- 
ence to  the  side  of  the  Government,  and  moved  all  the  force  at  the  com- 
mand of  the  gn  atest  bank  in  the  country  to  enable  the  bill  to  be  passed. 
And  as  we  were  endeavoring  to  influence  individual  members  of  Parlia- 
ment, so  did  he. 

Very  much  cou'd  be  said  on  this  subject,  especially  that  it  would  en- 
sure an  absolutely  safe  currency  for  the  country.  And  if  the  necessary 
contraction  of  discounts  by  the  other  banks  was  referred  to,  it  waa  easv 
to   say  that   merchants  or  their  bankers  might  come  to  the   Bank  of 


«60 


BANKING    AND    COMMERCE. 


Montrenl  and  get  nil  the  diKount  they  wanted,  If  tecuritjr  were  offered. 
Some  might  rejoin  that  one  bank  eould  not  carry  all  the  bnsineH  of  the 
country,  when  the  reply  would  be  to  quote  the  example  of  England,  and 
<he  Bank  of  England  diKonnting  for  other  banki. 

To  ■uch  an  extent  did  thin  line  of  reasoning  prevail  that  •cvcral  of 
our  Western  fricnda  beciriie  quite  cool,  while  the  Bank  of  British  America 
included  to  join  its  influence  to  that  of  the  Bank  of  Montreal. 

It  was  an  uphill  fight,  indeed,  with  such  powerful  influences  arrayed 
against  us.  But  the  rest  of  us  detrrniined,  nevertheless,  at  that  time  to 
persevere.  The  bill  was  re.nd  a  first  time.  Later  on  it  was  brought  up 
in  the  House  again,  and  refeired  to  a  committee  as  usual. 

It  was  either  at  this  lime,  or  before  the  measure  was  prepared  at  all, 
that  the  Government  framed  a  series  of  questions  on  the  subject,  ad- 
dressing them  to  the  bank  presidents  and  cashiers  of  the  country,  al 
well  as  to  prominent  members  of  the  mercantile  community.  The  ques- 
tions referred  specifically  to  the  securing  of  bank  notes  by  Government 
s.'curities.  Numerous  replies  were  received.  They  were  all  published 
in  a  Parliamentary  Blue  Book,  and  form  an  interesting  contribution  to 
the  financial  history  of  tlie  time.  So  far  as  the  adoption  of  the  system  of 
the  American  national  banks  was  concerned,  the  answers  reflected  opin- 
ions colored  by  the  position  of  the  parties  concerned.  My  own  answers 
were  to  this  eft'ect: 


Sprcipic  Objectiokb  to  thx  Proposed  Chaxoc, 

(1)  That  the  proposed  change  in  the  circulating  system  was  a  revo- 
lutionary one. 

(2)  That  the  whole  system  of  our  legislation  was  founded  on 
British  precedents,  under  which  all  revolutionary  changes  were  avoided, 
and  attention  directed  to  the  reform  of  acknowledged  evils. 

(3)  That  in  such  legislation  care  was  always  taken  to  bring  about 
the  least  possible  disturbance  to  existing  conditions. 

(4)  That  no  evils  existed  in  Canada  calling  fir  such  a  radical 
change;  for  any  losses  by  hank  circulation  had  been  iniinitesimally  small 
in  comparison  with  the  benefits  it  had  conferred  on  the  country. 

(3)  That  the  compelling  of  banks  to  hold  Government  securities  to 
cover  the  whole  of  their  circulation  would  cause  enormous  disturbance  to 
business,  bring  about  numerous  failures,  cripple  the  power  of  the  banks 
to  facilitate  the  movement  of  the  crops,  and  the  utilizing  of  our  forest 
resources,  and  compel  them  to  close  up  many  of  their  branches,  thereby 
inflicting  heavy  damage  to  the  small  towns  and  farming  districts. 

(6)  And  finally,  that  changes  might  be  introduced  into  our  banking 
charters  of  a  conservative  character  which  could  be  brought  about  without 
disturbance,  and  would,  while  preserving  the  essential  element  of  fre« 
circulation,  render  the  notes  of  the  banks  more  secure. 

We  had  not  then  thought  of  the  great  safeguard  of  making  notes  a 


NEGOTIATIONS   RESPFXTING  CIRCULATION.  361 

tint  chorge  on  .-iMrti,  or  of  the  formation  of  o  redemption  fund.     Tlu»c 
were  later  developroenti. 

The  an.wer§  of  the  majority  of  prnetleal  banlterj  were  to  the  same 
elTeet  ai  the  foregoinu,  thougli  the  direetor.  of  some  of  the  banki  el- 
preiKd  Ihemielves  differently.  And  some  roerehnnta  who  bad  road 
boolu  on  political  economy  aired  fnneifid  llieoriif  on  the  aubjei't. 

I  amplified  my  own  ideas  In  a  leries  of  lelteri  to  the  Toronto  "Globe," 
under  llv  aii^ature  B.  X.  K.  R.,  and  also  addreiied  a  large  meeting  of 
the  Board  of  Trade  in  Toronto,  pointing  out  that  it  wai  as  much  a  mer- 
chant's question  as  a  banker's.  Mr.  Jack  was  equally  busy  in  Nova 
Scotia,  .ind  Mr.  I.ewin  in  New  Brunswirk,  stirring  up  the  business  com- 
munity to  an  appreciation  of  the  evils  to  trade  and  commerce  that  must 
ensue  if  the  measure  passed.  The  managers  of  all  the  banks  in  the  City 
of  Quebec  were  active  in  the  cause,  especi.illy  Mr.  Slevenion  of  the 
Quebec  Bank,  and  Mr.  Veaina  of  La  Banque  Nationale.  Some  of  the 
bankers  of  Montreal  were  also  with  us.  and  rendered  good  service,  but 
were  not  so  prominent  in  the  contest  as  Western  men. 

We  were  particularly  careful  to  avoid  even  the  nppear.inee  of  making 
the  matter  a  political  one,  for  we  knew  well,  in  that  case,  there  would  not 
hove  been  the  least  chance  of  success.  The  leaders  of  the  Liberal  party, 
which  was  then  in  a  minority,  were  largely  with  us,  as  we  well  knew,  and 
this  purely  on  financial  and  business  grounds.  We  knew  also  from  the  be- 
ginning that  two  of  the  most  inflnential  supporters  of  the  Government, 
both  residing  in  Toronto,  were  with  us.  One  was  a  Senator,  the  other  in 
the  House  of  Commons.  They  held  strong  views  on  the  subject,  and  ren- 
dered invaluable  service  to  our  cause  both  in  and  out  of  Parliament. 
They  both  had  the  ear  of  Sir  John  M.acdonald,  and  did  not  fail  to  point 
out  to  him  the  danger  of  alienating  his  followers,  especially  from  On- 
tario and  the  other  Lower  Provinces.  In  fact,  this  was  really  the  (.  licy 
we  adopted;  via.:— to  alienate  one  by  one,  on  this  question,  so  many  of 
Sir  John's  supporters  that  if  he  allowed  the  Finance  Minister  to  force 
the  measure  through  the  House,  the  Government  would  be  in  danger  of  a 
defeat. 

We  had,  however,  continually  new  difiicniliea  to  contend  with.  The 
Commercial  Bank  had  failed,  the  effect  of  which  was  still  further  to 
weaken  confidence  in  bank  notes.  One  or  two  Western  banks  were  known 
to  be  weak.  The  directors  of  others  were  afraid,  for  business  reasons,  to 
do  anything  in  opposition  to  the  all-powerful  Bank  of  Montreal,  whose 
branches  were  to  be  found  in  every  important  centre  of  business.  At  one 
time,  when  we  were  having  a  conference  in  Ottawa,  rumors  of  coming 
financial  trouble  were  so  rife  that  the  conference  broke  up  and  some  of 
its  members  went  hastily  home  to  look  after  their  own  interests.  How- 
iver.  I  knew  that  the  Bank  of  Toronto  was  all  right,  and  remained 
ciuietly  in  Ottawa. 

But  a  feeling  of  uneasiness  began  to  prevail  among  some  of  the 
presidents  of  banks.    Some  of  them  were  politicians;  others  had  interests 


BANKING    AND    COMMERCE. 


! 


«,e,  'h.n  .h"^l».  .nd  It  w..  «n«l..v  decided  to  hold  .nothe,  gener. 
«„  /Jnce  on  the  -ubjeot.  The  pl.ce  -'*-<.  "".wtJC." 
Welv  attended  hv  preiident.  .nd  vloe-pr.  .idem.,  but  only  .  few  c..h 

lenJIerted  A  long  diKUMlon  entoed;  the  gener.1  trend  of  which  WM 
ZTw»rnof d;.lr»ble  to  continue  the  .git.tion.  I  w..  pr.«nt  «  »ec- 
'HZ  HZ  >»'"•  I  "«"  could  .pe.k  with  -.-"'ffl^^o  n 
di  duil..  o,  .„  n  .n-U  nun,ber.  The  n,ee.ing  «"«'  ^  ""'!". '^  Th. 
.ion  to  c«.e  from  .gitoting  the  n»llcr,  to  accept  the  principle  of 
Bill,  and  to  relv  on  mokinn  amendmenti  In  detail. 

ThU  w...  to  me,  a  matter  of  great  mortification,  and  I  went  home 
J  „rd,„,e.«.d  for  I  well  knew  that  to  accept  the  principle  of  the 
X  to  Xld  etr  "hing.  The  net  day,  however,  having  «cove«d 
!  .lirit.  and  feci!  «  nuirc  than  ever  the  momenton.  i«uc.  involved, 
L  tha  detite  cria'  had  arrived.  1  told  the  pre.ldcnt,  «  "  J-»^  J 
do  to  accept  the  conduaion.  of  that  conference.  The  paM.g.  of  that  bdl 
ij  J„  .h.  Rank  of  Toronto  more  harm  than  any  bank  in  the  country. 
«>  tt  o  ng  t  ;.,  thcTaV  part  of  the  grai.  and  l-be' J;^^- 
If  tlT,  Weatem  country,  and  it  wa.  there  where  the  Wll  would  rtrike.    1 

Su?^-::eS^;^=fp^^{H5HJ 
s^^ri^r  ^wa:^^^.'^  r  ^  f 5^5; 

»™^Vo  take-to  n.t  myelf  in  oppoaition  to  the  coneluaion  of  nearly  all 
ft^bank  P^d^nt.  of  Ontario,  but  I  knew,  a.  a  profeaaional  banker,  the 
" tu^of  the  i..ne.  involved  better  than  any  of  theae  ««f '™"'  "f 
Srte^ined  that  the   con,«t  .hould  not  be   given   up  wrthout  another 

"'Twcnt  down  to  Montreal  and  ..w  the  men  I  had  propo«d  to  meet. 

Theyler^  all  of  the  -ame  mind  with  myaelf,  we  "■«".""'■»« J"-^  ~^^ 

teat  to  .he  end;  it  w«.  «.ele«  to  t.lk  ">""' '"^''^'J'^ Im  Uv  ^  <• 

of  the  bill,  a,  wa.  ,ugge.ted  in  Toronto.    The  .tmg  of  the  bill  lay  .a  .(. 

«r.n<..i>ie  and  that  principle  wc  would  fight  to  the  end. 

'"itZL.  of  the' Government  were  di,po,ed  t-^-de^- "^ 

fn.*.     "What  i.  the  good,"  .aid  they,  "of  a  parcel  of  .mall  bank.  Ktting 

he™elvXn  option  to  a  .trong  Government  like  our.,  and  to 

he  two  ,7r onge.t  Jnk.  in  the  country?"    We  were,  however,  not  fnght- 

ted  at^l'talk  a.  thi,,  for  we  knew  well  that  ^^'2^^^^^'^- 

fluencing  vot..  in  the  Hou.e  of  Commons,  a  numter  of  .mall  bank.  «*ng 

l;r'::n  do  more  than  any  ,ingle  bank,  no  matter  how  powerful. 

Thu.,  then,  we  determined  to  per.evere. 


NEGOTIATIONS   RESPF.CTIXO  CIRCULATION.         36) 

The  .onion  of  P.rll.mml  dofrd  without  .nothing  bring  donr.  .nd 
wf  hud  nnotlit-r  brratliing  ipaor. 


Before  thr  next  unr  oprncd.  n  vrr.v  linportnnt  change  had  taken 
plwe.  The  Hnanee  Minl.t-r.  Sir  .lohn  B.,,e,  had  resigned  and  gone  to 
England  to  found  the  financial  l<ou<e  of  Morton,  Rok  &  Co.  Sir  FraneU 
Hlneki.  u  proralnenl  Canadian  politician  of  former  day.,  had  iu.t  ar- 
rived In  the  connlry  from  Barbadoe.,  of  which  Island  he  had  been  Gov- 
ernor for  wme  year..  Some  conference,  between  him  and  the  Premier 
re.ulted  in  hi.  re-,ntering  Parliament,  and  being  oiTered  the  poaition  of 
Finance  MlnLter.  Hi.  adveat  to  power  ralKd  our  hope,  considerably. 
He  wa.  a  We.tern  man  of  a  very  practical  turn  of  mind,  had  lived  ii, 
Toronto  many  year.  a.  a  man  of  bu.ine..,  and  thoroughly  knew  the 
want,  and  rcqulremint.  of  the  We.  em  country.  Of  theie,  the  late 
Finance  Minister  knew  practically  nofilng.  He  wa.  a  lawyer  in  Mont- 
real; and  able  man  a.  he  wa.,  the  huriion  of  hi.  Ananclal  view.  wa. 
largely  bounded  by  Montreal  Intcre.t..  But  rfe  in.tlnctively  felt  that  Sir 
Franci.  wouk'  give  practical  conaideration  to  our  reprcentalion..  And 
io  it  proved. 

Soon  after  he  auumed  office  he  determined  to  come  up  to  Toronto  to 
c«n.ull  the  H-e.tem  banker,  and  the  aupporter.  of  the  Government  on 
the  .ubject.     It  .o  happened  that  I  wa.  on  the  platfor  the  Grand 

Trunk  Railway  .tation  when  he  arrived,  being  about  to  vi.it  one  of  our 
branches.  Some  political  friend,  had  come  to  meet  him,  one  of  whom 
was  that  member  of  the  Hou.e  of  Common,  who  had  >o  warmly  espoused 
our  cau.e.  He  Introduced  me  to  Sir  Francis,  and  informed  him  that  I 
could  give  him  full  inforu'ation  respecting  the  controversy,  a.  Weatern 
bankers  viewed  it.  We  talked  for  Mme  time,  he  manifesting  great  in'r- 
Mt,  and  evidently  taking  in  the  position  a.  -sented  to  him.  He  then 
went  into  the  city  to  see  other  banker.,  wme  of  vhem  old  political  frimd. 
ond  with  whom  he  had  further  conference..  He  remained  a  day  or  two 
in  the  We.t,  and  on  leaving  for  Ottawa  promiKd  to  give  careful  attention 
to  the  representation,  we  had  made. 

He  had,  of  course,  heard  the  other  side  from  members  of  the  Govern- 
ment, and  from  the  Bank  of  Montreal.  But  it  wa,  ,«,n  made  evident 
that  he  would  think  the  matter  out  for  hinuielf,  and  take  hi.  own  course 
no  mitter  what  name,  were  quoted  >  Influence  him.  I  have  no  doubt 
after  leaving  Toronto  he  also  saw  bankers  from  Quebec  and  the  M.riti-  e 
Provinces.  Some  time  now  elapsed  and  the  period  wa.  one  of  alternate 
hope,  and  fears.  But  at  last  we  were  su.ymoned  to  meet  bin.  in  Ottawa. 
A  full  representation  from  the  We.t,  the  East,  and  the  Maritime  Prov- 
ince, gathered  In  the  capital,  and  to  this  conference  Sir  Francis  an 
nounced  the  conclusion,  he  had  arrived  at.  These  in  substance  were  a. 
follows : 


M4  BANKING   AND  COMMKBCK. 

N»./  I.AW  BmfKcTiNn  Cii-crLAiioK. 

(1)  Tliiil  th.  b«i.k«  .hoiiW  rrtnln  thrir  ciriulnllon,  with  Ihc  ewtptloB 
of  the  not.-,  of  one  and  two  dollar..    Th...-  to  be  l..o«l  by  th.'  Oo«ni- 

"""(2)  Tho  bank,  to  W  under  no  ol.ll|i..li.>n  to  eover  their  elrclUtlon 
by  Government  .ecnrllle,.    B.rt  no.  to  iMoe  l~-yond  their  pnid -op  e»p.t.  . 

CO  \n  A.t  to  !»■  p...ed  erecting  .n  i..ne  of  Government  leg.l- 
tender  not.-,  for  the  p»r,K«e  of  „-lllem,n.  t«tM-.-e„  b»nk,.  The  e„.h  re- 
.,-rve.  of  the  bank,  at  all  thne.  to  con.l.l  partly  ot  ...eh  note..  ,ay,  to 
the  extent  of  two-fifth,  of  the  whole,  whatever  ...eh  re.er,e.  mljH<  b« 
from  t  .ne  to  lime.  For  lho.e  h.al-te„d. r  note.  «,.ld  to  be  h.-^d  by  th. 
GoTernment  t.  an  e.t.-nt  to  W  agreed  „p.m.  The  balanee  '"•-•-;;;* 
bv  Government  .eeuritie,  h.-ld  in  the  Trea.,.ry,  of  whieh  l-n  ,»Mr  eent 
wonld  iK-  goaranteed  by  the  Imperial  Government,  fhu.  all  o^.nary 
,..„e.  wonld  be  eovered  either  by  g..ld  or  Oov.rnmen.  .eenr,  i.  Beyond 
.hi.  amount  all  Government  note,  to  l.e  .ee„r.-.l  by  gold  »";'»'^;^;'*'^  ^ 

Some  other  p.ovl.io„.  for  .eenri.y  were  added,  mo,  °f  ''h.oh  had 
Wen  ...■rg.-.led  bv  our,elve,,  but   the  foregoing  were  the  tundamenUl 

'"Twiin^  ■pe'^r.^^i^d  at  once  that  thi.  eoneeded  praetiea.ly  all  we  had 
eontenl  d  for.  The  .nrrendering  of  one  and  two  dollar  note,  .mounted 
Tno  hing.  We  were  not  „.rry  to  get  rid  of  them,  for  in  the  run.^^ 
.ome  of  n.  had  p...ed  through,  the  bulk  of  the  people  that  crowd«l 
round  o.,r  eounter.  had  pre.ented  only  thi.  ela..  of  not-.^ 

The  obligation  to  hold  forty  per  cent,  of  our  ea.h  "«"«  '"  ^»"" 
,„ent  note.,  wa,  «.mewhat  di.ta»teful,  for  we  had  a  ■>•  h''*  ™'  T''"'' 
oTh  re.erve  in  gold;  and  «.me  feared  that  it.  adopt.on  might  d.'turb  th. 
.:  id  ba.i.  0,.  wmel,  o,.r  currency  and  6nancial  .y.tem  re.tcd.  But  •«„ 
»1  the  prono.al  could  1»-  adopted  wltho..l  practical  .neonven.cnce  or 
S";«r  ?o7  Ur  note.  themK-lve.  re.tcd  on  gold  and  -""""  "•■"'^^ 
coTnible  into  gold.  And  the  i..ue.  of  the  «"vernn,eM  apart  from  h^ 
.mall  not...  wo.dd  not  enter  into  circulation  at  all,  being  .11         l.rg. 

■"T'wtTim.nen.e  relief  to  u.  when  the  Finance  Mini.ter  announced 

,.^:„e.u,ion^a.whe„w.^.«^^^ 

TmlX  t  c'm:."  L-ue  had  been  agreed  to,  and  .11  d^ared  their 

C.  .ndgTeat  ..ti.f.ction  wa.  »pre..ed  at  the  happy  re.ult  of  .0  long 
•"'.rr  oXrained  to  embody  the.c  conc,u.ion.  in  legi.lation.  And 
here  we  come  to  the  origin  of  "The  Canadian  Bank.ng  .Act. 

«"thTg.^  to  the  proposed  i....e  of  Govern.„ent  note,   .t  wa.  com- 
paratively e'a.y  to  frame  an  Act  embracing  the  point,  agreed  upon.   Th.. 


XEOOTIATIOXS   nF.SPF.CTlXO  CIRCULATIO.V.         36, 

•».  donr    ,„„1  it  ..,1.1,  ,,^Hny  a.  tbr   Dominion   Xol.-  Aot,  Irnvne  rr- 
11.  pro vi,i„n.  .„  „H...,  fh.  „p„n.l„n  of  Ihr  bti.ln,...  of  the  ronnlrv. 

n  l,„„„.nl.  In  ,1,,.,,  „,„!„  ,„„,,.ion,  „«„,  „f  ,(,,  „,,„,„;  ,„,  „,n . 
llul  ,n  ..■v..r„I  .„„,  ,1,,  ,,,„„i,„,i„„  „„,,  pHvllr,..  „f  thr  bank  wrrr  on  . 
d,(r..r,.„t  1,„.M  Iron,  ,|,..  „,,.  Tl,n.r  ml.  h.d  b,™  p,,...^  .t  difr.-r.nt 
|«r..d..  nnc   .•onl„i„...l  „  „„n,l.-r  of  n.inor  provi.i,,,      ,ii,r„i„g  f„„,  „„, 

«n  ,Horl  .l,„„|d  l».  m„d,.  to  frmn,-  on..  p.n.„l  .,.(.  r„,lH«l,in,  ll,r  m„.t 

.'"'I""""'"  l;""'« »'•  ""• II.  •.-•..  >l..r  with  ,l,„„.  iJu'd  ZZZ 

^Z  T       "■  '"•  :'":  <"»••.'"•"••"'■  ■  '«■•'  NX-I  n,i„.l.  in  P„,li„n,™, 

».r,   ll,.-„  conv,-n..d,  m  oonjnnrlion  ,ill,  the  Finnnoe  Miniiler,  to  fr,m, 

and  , on.,  of  tl,.  „,.„  |„„.„  «,,,  ,,„^„  ,,y  hi,„  ^^„  ^^_,  ,_J  ^.^__  ^^^.^  ' 
n  th.  lat..  ..ontrov.r.y  »,.r...  invit.d  to  ,n..rl  in  ()t,„w„  on„.  ,„orr,  and 
D>n  Zrr""  "'•'  ,'"•■;';'"  "'  """  "W»tion.  Xh..  <.on,n,i.teo 
the  Bnnk  of  .Monlnal;  for  now  tinil  ll,e  grrnt  |)oinl  f  di«r,cn«  had 
bcrn  ...„.d.  .  c  inter..,.,  of  all  the  bank,  wrre  alik.-.  Hepr..en,»t"e.  of 
bank,  from  oil  pari,  of  the  oounlry,  therefore,  .at  in  conferenee  day  by 
day  d.«.„.„ng  the  e  a„.e.  of  the  pr„p„.cd  „,  one  by  one,  and  none 
rendered  more  valuable  «■■  'ee  than  our  lale  formidable  antagoni.t,  wh 
..t  w,tl,  u.  the  whole  lime,  and  brought  to  lx.ar  upon  the  matter  all  tho., 
quahfe.  ol    .onnd   jodgm.nt  and   keen   p.,eeplion  whieh  di.tingni.het 

ri.-n  '  !i  '"  ""■■/'  ""  ™""»»'"  '«""»  of  'I'c  Hou,e,  and  di,eu.,ed 
the  b,  1  with  a  eon,iderable  ,en.e  of  re,p„n.lbilily,  being  well  aware  not 
only  that  our  eonelu.ion,  would  aflVct  the  whole  banking  intere.t.  of  the 
country,  but  every  other  interest,  eomm.reial,  manufacturing,  and  in- 
du.trial.  not  to  ipiak  of  the  inler.-st.  of  the  (iovemment  iHelf 

Many  of  the  director,  of  the  bank,  and  .cveral  of  their  prwident. 
were  Member,  of  Parliament ;  ,on,e  in  the  Senate,  .ome  in  the  Hon.e  of 
lommon,.  The.e,  of  course,  .at  with  u.  from  time  to  lime,  ,o  that, 
though  not  formally  constituted  a,  .neli,  we  rcallv  were,  in  effect  a  joint 
eommiltie  of  Parliament  and  of  bankers. 

I  have  always  considered  that  this  gave  our  Banking  Act  its  peculiar 
value,  in  that  it  expressed  the  matured  judgment,  shar|»ned  bv  «- 
periene..  of  the  foremost  men  in  banking,  commercial,  and  political  life. 
Atler  all  this  preliminary  work,  in  which  members  of  both  political  par- 
lie.  loincd.  it  may  be  imagined  that  the  bill  passed  through  Parliament 
With  little  criticism  and  no  op))05ition. 

II  bear,  marks  to  thi.  day  of  being  an  amalgamating  act,  with  ei- 
eeptions  here  and  there,  in  minor  features,  but  bringing  every  b  .nk  i* 
Uie  country  under  the  same  gfueral  law  in  regard  to  essentials.  " 


tM  BANKING    AND   COMMERCE. 

The  durntion  of  the  art  ■«■«•  for  ten  yeiir«,  and  it  hm  been  the  in^ 
JMt  of  careful  connidcralion  and  diwUMion  at  every  decennUl  period 
.ince  1871.  It  ba>  been  amended  and  improved  in  important  particnlan 
after  pawing,  however,  through  the  some  proces.  that  it  pawed  through 
at  firrt,  vil.:  long  conferences  between  the  Finance  Miniiter,  or  hu 
Deputy,  and  hauliers. 

Safety  of  Bank  Notes  Fdbther  AsstnEn. 

By  far  the  most  important  of  these  amendments  was  that  which  pro- 
vides for  bank  notes  to  be  a  Firsi  Charge  on  M  the  «,el.  of  a  hank. 
and  as  snb.idi.rv  to  that,  the  foundation  01  a  Redemption  Fund,  the  far- 
reaching  effect  of  which  has  been  or^ncd  up  elsewhere.  Both  these  were 
proposed  by  the  banker,  themselves;  the  first  in  response  to  a  renewed 
proposal  to  revive  the  act  compelling  a  ™vering  by  Government  ecu^ 
flies  That,  howeve  ,  wss  not  a  serio,.»  eflort,  and  the  Mm.stcr  readily 
gave  way  to  our  proposed  substitute  of  a  first  charge.  

I  have  thus  de«:ribed  in  detail  the  various  steps  of  the  proces,  by 
which  Canada  came  to  posses,  a  general  Banking  Act,  wlueh  ha.  proved 
itself  satisfactory  in  the  highest  degree  in  its  pract.cal  »;«""»'  "^ 
under  which  a  system  of  bank  circulation  ha.  been  esUbh.hed  wU^ 
combines  in  an  emment  degree  the  qualities  of  '«f'*y'  f  "f  ^  "f 
adaptability  to  the  varying  requirement,  of  commerce,  jmd  by  '•«  »^ 
tion  of  which  the  financial  affair,  of  the  country  h.ve  been  P«»«7*  »» 
a  more  stable  equilibrium  than  in  «.y  other  part  of  thl.  continent,  uid 
perhaps  of  the  world. 


CHAPTER  yi. 

MT  EXPEBIENCX  AS  OENSXAL  HANAOES  IN  HONTSEAL. 

OrOLUDIRO  BEFESEN0E8  TO  BUSINEaB  IN  NEW 

YORK,  OHIOAOO,  BmWAUKEE,  AND  TO 

THE  BABINa  0BI8I8. 

EutAROED  Hesponhbiutiib— Shabeholdbbs'  Annuai.  Mektixo— Bank 

FailCRE,    ,n    M0NT«I»L-0l.R    BUHNE.,    IN    N,w    YoHK— JoURNET 

TO  THE  Sooth— Silver  Aoitation— Vi.its  to  Commercial  Cen- 
ter. IN  Enolano-The  Barino  C»i,i^Chicaoo  and  Minneaf- 
OLii^\  i,iT  to  Manitora— The  Manitoba  Boom— The  Bankeri' 
AI.OCIATION— Renewal  or  Banr  Charter,  and  the  Securino  or 
Circulation  by  a  Fir,t  Lien  on  Amet,-F,nal  Retirement  rROM 
Banking. 


AFTER  I  left  the  Bonk  of  Toronto,  I  still  continued  to  keep  in 
J-  ».  touch  with  hanking  and  finiiuciol  movements.  It  was  agreed  that 
I  should  do  so  for  about  twelve  month,  after  my  reUrement,  and 
give  the  bank  the  benefit  of  any  information  at  my  command.  Moreover. 
I  .till  contuined  to  write  for  the  pro  on  financial  subjecta.  This  wa.  in 
January,  1877. 

.  J*!.'  1'"^'  *^'  """^  '^"  ^^  '"  ■"■"'•'  "■«<=  y""-  They  continued 
to  be  bad.  Business  was  difficult,  and  failure,  incrcasinglv  nomerous.  It 
wa.  known  in  banking  circle,  that  one  of  the  leading  bank,  of  the 
country,  the  Merchants'  Bank  of  Canada,  was  meeting  with  severe 
loMc;  and  in  such  time,  a,  were  tl.en  p.,sing  over  us,  it  wa.  with  no 
•nrprise  that  the  public  learned  that  an  uneosv  feeling  wa,  developing 
amongrt  the  stockholder,  and  creditor,  of  the  bank.  In  the,e  circum- 
rtance.  a  movement  was  made  by  a  number  of  stockholders  looking  to  the 
retirement  of  the  president  and  general  manager,  which  ilnallv  resulted 
m  tht  resignation  of  both.  A  new  president  and  vice-p,e.ldent  were  at 
once  elected.    But  the  office  of  general  manager  wa,  vacant. 

Enlarged  Rehfonsirilities. 

I  .l"  H?  f*^"' '""^  ™'''*''  "*■  Frtruary,  only  si,  week,  after  I  had,  a. 
I  thought  bade  farewell  to  banking  for  life,  lliat  it  wa.  intimated  to  me. 
by  a  banking  friend,  that  the  director,  of  the  Mew^hant,"  B«,k  were 
thmkmg  of  offering  the  position  of  general  manager  to  me.  I  .miled 
«.d  said  the  rumor  wa,  ab,u«l.    I  had  given  up  banking  and  wa.  "out  of 


S6« 


BANKING    AND    COMMEBCE. 


the  ninning."  However,  he  persUlcd  that  he  h«d  the  infonuaaon  from 
a  reliable  source.  Thi>  proved  correct;  for  In  the  course  of  a  day  or 
two,  during  which  I  had  been  able  to  think  over  the  matter,  a  genUeman 
from  Montreal  waited  upon  me  to  ask  whether  it  would  be  possible  for 
me  to  take  charge  of  the  Merchants'  Bank,  in  the  present  emergency.  I 
asked  him  at  once  whether  he  represented  the  directors.  He  assured  me 
that  he  did.  He  added  that  he  was  authorised  to  say  that  in  the  event 
of  my  giving  consent,  everything  in  the  way  of  support  and  assistance 
from  the  board  would  be  rendered  me;  that  the  late  president  was  still 
retained  as  director;  that  he  could  give  me  all  necessary  information 
about  the  affairs  of  the  bonk.  (This  was  the  late  Sir  Hugh  Allan,  whom 
I  knew  well.  Of  his  high  position  I  need  not  speak.)  The  late  general 
manager,  he  added,  was  still  in  charge,  and  would  render  every  assist- 
ance. 

The  responsibility  of  taking  charge  of  a  bank,  under  the  circum- 
stances, was  a  serious  one,  for  two  reasons.  It  had  been  attempted  once 
before  in  the  case  of  the  Bank  of  Upper  Canada,  but  the  attempt  had 
entirely  failed ;  yet  the  gentleman  who  undertook  the  task  was  of  much 
greater  experience  and  much  higher  banking  position  than  I  could  pre- 
tend to;  besides  this,  the  times  were  very  difficidt;  there  had  been 
three  years  of  depression,  and  it  was  feared  there  would  be  more,  a  fore- 
cost  which  proved  only  too  true,  for  the  succeeding  years  were  worse 
than  those  that  had  gone  before.  Insolvencies  were  increasing  year  By 
year,  and  a  settled  gloom  was  prevailing  in  the  commercial  community, 
so  that,  instead  of  the  usual  query  on  'Change,  and  at  the  clubs,  "How 
is  business?"  the  question  was,  "Who  is  going  to  fail  next?"  In  the  im- 
porting trade,  bad  debts  were  swoUowing  up  all  the  profits  and  more. 
There  was  no  proKt  in  manufacturing,  but  very  much  the  reverse.  The 
great  lumber  .md  timber  interest  wm  in  one  of  the  deepest  sloughs  of  de- 
pression into  which  it  has  ever  been  plunged. 

Such  was  the  condition  of  things  when  I  was  asked  to  assume  charge 
of  the  Jlerchants'  Bonk.  I  knew  something  of  this,  from  my  experience 
in  Toronto,  but  I  did  not  know  alL  If  I  hod,  it  is  doubtful  whether  I 
would  have  hud  the  couroge  to  undertake  the  heavy  task  of  rescuing  the 
bank  from  its  difficulties  and  placing  it  on  a  sound  footing.  There  was, 
however,  one  great  diU'ercnce  between  the  case  of  the  Bank  of  Upper  Can- 
ada and  this,  via.:  in  the  composition  of  the  board.  The  board  of  the 
former  bank  I  have  characterised  already.  That  of  the  MerchanU' 
Bank  W.1B  a  complete  contrast  to  it  in  every  respect,  consisting  as  it  did 
of  some  of  the  wealthiest  and  most  experienced  business  men  of  the  com- 
munity. Yet,  able  and  important  as  they  were,  they  were  willing  to  give 
nie  a  jjcrfectly  free  hand  in  the  work  of  reorganisation,  and  to  co-operate 
in  any  suggestions  I  made  for  improvement. 

The  two  leading  banks  had  offered  to  render  assistance,  and  very 
politic  it  was  in  them  so  to  do;  for  if  the  Merchants'  Bank,  with  its 
multifarious    business   and   branches    spread   all   over   Canada,    and   its 


AS  GENERAL  MANAGER  IX  MONTREAL. 


369 


agencies  in  NeM'  York  and  London,  had  stopped  payment,  it  is  certain 
that  a  condition  of  panic  would  have  superseded,  such  at  to  shake  the 
credit  of  the  country  to  its  foundations.  Their  willingness  to  aid  saved 
Canada  from  this  disaster.  They  .i^reed  at  once  to  advance  the  sum  I 
named  as  necessary;  and  a  very  large  sum  it  was.  But  the  security  was 
unquestionable. 

The  ^board  and  the  managers  co-operated  heartily  in  the  work  of 
reconstruction ;  but  the  task  proved  far  more  difficult  than  I  could  have 
anticipated.  Not  only  were  there  masses  of  Canadian  accounts  to  deal 
with,  of  the  same  kind  that  1  had  had  to  deal  with  before,  but  on  a 
more  extended  scale;  there  were  in  addition  immense  operations 
being  carried  on  in  New  York  and  London,  of  a  different  kind  alto- 
gether. 

The  former  I  cut  short  at  once,  severe  as  the  loss  was,  and  it  was 
well!  did;  for  had  the  operations  been  let  alone,  the  loss  would  have 
doubled.  With  regard  to  the  latter,  I  accepted  a  favorable  proposal 
made  by  the  General  Manager  of  the  Bank  of  Montreal,  whom  I  had 
consulted  on  the  subject.  There  was  going  on  at  this  time,  indeed,  what 
seemed  like  a  certain  amount  of  cargo  being  thrown  overboard  to  save 
the  ship.  But  save  the  ship  we  did,  and  steered  her  at  last  out  of  the 
stormy  waters  in  a  sound  condition,  and  well  found  in  every  respect,  by 
the  blessing  of  God.  And  so  she  has  continued  ever  since;  and  I  don't 
think  what  was  thrown  overboard  was  of  any  permanent  value;  indeed, 
I  told  the  stockholders  afterwards,  that  during  this  terrible  period, 
though  we  had  to  wade  through  and  settle  up  masses  of  insolvencies,  we 
had  not  lost  a  single  valuable  account.  But  with  me,  it  was  night  and 
day  work  for  more  than  three  years;  and  my  banking  hours,  during  this 
period,  might  be  said  to  have  been  from  nine  in  the  morning  till  eleven 
at  night. 

Annual  Meetino. 

The  time  came  at  length  for  holding  the  annual  meeting,  and  a  very 
important  occasion  it  was.  It  was  not  without  apprehension  that  we 
had  looked  forward  to  it,  for  it  had  begun  to  be  rumored  in  the  city  that 
an  attempt  would  he  made  to  hold  some  of  the  directors  personally  re- 
sponsible for  the  losses.  The  meeting  therefore  needed  to  be  very  care- 
fully handled.  As  the  report  of  the  directors  was  read,  and  it  was 
stated  that  .■>  reduction  of  capital  of  more  than  two  millions  would  be 
necessary,  a  condition  of  suppressed  excitement  arose  in  the  meeting. 
I  was  aware  that  explanations  would  be  asked  from  myself,  and  had 
considered  carefully  what  remarks  to  make.  The  directors,  I  was  con- 
vinced, were  not  so  much  to  blame  as  was  generally  supposed.  I  there- 
fore began  by  reminding  the  stockholders  that  the  directors  were  very 
heavy  holders  of  the  slock;  that  none  were  so  interested  in  the  welfare 
of  the  hank  as  they  were;  that  they  would  be  the  heaviest  sufferers  by 
the  reduction;  that  the  times  had  been  very  difficult  for  several  years; 
«4 


,.^0  BANKING  AND  COMMERCE. 

lh.t  .11  bank.  h.d  .ufferrf  Io..«;  th,l  if  th.  director.  h.d  ™^<  "■>- 
take.,  thty  h.d  Mknowlcdged  then.,  .nd  .gr«d  readily  l"  "y  '"^f " 
Hon.  for  improvement;  that  the  wiK  and  practical  coar«  for  them  a. 
men  of  bu.ine,.  wa.  to  mJce  the  bert  of  the  .ituation,  ju.t  a.  m«.  had 
to  do  at  time,  in  conducting  their  own  bn.ine...  I  told  them  that  the 
bank  had  a  large  «notmt  of  good  basine..  left,  and  .ii  m.llion.  of  cap- 
ital after  reduction;  that  upon  Ihi.  new  foundation  a  good  future  might 
be  developed;  and  that  if  the  reduction  of  the  "P''»' J""' .""™  °"'' 
there  could  be  little  doubt  that  .teady  dividend,  could  be  paid  in  future. 
What  the  dividend,  wonld  be  would  depend  upon  the  general  cour.e  ot 
affair,  in  the  country,  but  that  the  bank  had  considerable  earning  capacity 
there  could  be  no  doubt.  .1  j  „  »„„ 

Mv  object,  a.  will  be  .een,  wa.  to  pour  oil  on  the  troubled  water, 
and  ti  turn  the  thought,  of  malcontent,  into  another  channel  from  what 
they  had  been  dwelling  upon.  ■ 

The  vice-pre.ident  made  .ome  very  pertinent  remark.,  much  to  the 

•""it'rr  object  of  mine  to  ca,t  blame  on  0^0!^.;  but  thi.  I  had  to 
do  to  «me  extent,  but  cautiou,ly  and  guardedly.  When  I  ••'J-™  »« 
or  two  of  the  .toekholder.  a.ked  quettion,.  evidently  IP'«P«'f  ^f""" 
hand,  a.  to  the  re.pon.ibUity  of  the  director.,  and  what  w«  to  be  done 
in  viU  of  it.  I  had,  however,  no  difhcully  in  nnsweriug  them  Mi  a.  to 
prevent  tLt  kind  of  r«n.rk  being  ca^ed  further.  The  laU  pr«^dent 
with  hi.  usual  ..gacity,  »t  perfectly  .ilent  during  the  "■«'■»«.  *«»«^ 
mo.t  of  the  <Tilici.m  wa.  directed  .gain.t  him.  A  few  other  que.Uon. 
were  a.ked,  one  of  the  mo.t  important  being  by  Mr^  Donald  Smrth  of 
rhrHud.on  Bay  Company,  now  Lord  Strathcomi.  Thi.  I  wa.  able  to 
In.wer  to  hi.  .aU.fact^n.  The  meeting  finally  ended  in  the  adopi^n  of 
a  recommendation  to  a.k  Parliamentary  .auction  to  a  reduction  of  twenty 
five  per  cent,  on  the  capital.  And  the  director,  were  unan.mou.ly  re- 
elected. 

So  ended  this  very  important  meeting.  „„j. 

The  axnual  meet.no  .ettled  thing,  .omewh-t,  and  I  ,oon  •fte'wrd, 
had  the  «ti.faction  of  repaying  to  the  bank.  .11  we  had  l>."«wed  f "m 
them,  .tiU,  however,  keeping  good  reserve..  We  were  al.o  r»l  .ing  d.W 
dend  from  in«.lvent  estate.,  «.d  the  proceeds  of  properties  we  were 
bringing  to  .ale  from  month  to  month.  And  a.  on.  knotty  po.nt  after 
anXr  was  ettled,  and  one  wave  of  difficulty  •"''«.■. *«  ™  •»- 
mounted,  I  become  more  .nd  more  hopeful  of  the  ultimate  ■-•'•»"» 
rexp«ied  development,  occaaionally  tried  my  patience  almort  beyond 

"""wf  ^11,  however,  bad  one  more  ordeal  to  pass  through    namely,  t. 
get  a  WU  through  P.rliament  authorising  the  reduction  of  stock. 

AlPLICATIOM  TO  PiKLlAMENT. 

The  firrt  year  had  pa.«d  away.    We  were  ■"'kto*  •  '«"  P"^' "J 
of  our  good  Line..,  taT  could  distribute  nothing  until  the  capital  w« 


AS  GENERAL  MANAGER  IN  MONTREAL. 


371 


adjusted  on  a  new  bails.  But  the  timtrs  were  inereailngly.  difficult.  De- 
pression  became  deeper  and  deeper,  and  by  the  time  that  Parliament 
opened,  and  we  had  to  make  our  application,  it  became  evident  that  the 
reduction  would  need  to  be  larger  than  the  stockholders  had  voted  for. 
I  was  certain  of  this,  owing  to  the  number  of  new  failures  that  had  trans- 
pired and  the  unsatisfactory  result  of  many  insolvent  estates.  It  was 
therefore  with  a  heavy  heart  I  proceeded  once  more  to  Ottawa  and 
traversed  the  familiar  halls  and  corridors  of  former  years. 

The  able  and  experienced  Solicitor  of  the  Bank,  the  Hon.  John 
Abbott,  accompanied  me;  perhaps  it  might  be  put  that  I  accompanied 
him;  for  of  course,  as  our  Advocate,  he  would  have  the  task  of  present- 
ing the  case  to  the  Banking  and  Commerce  Committee  of  Parliament. 
He  was  a  member  of  Parliament  himself,  and  some  years  after  became 
Prime  Minister. 

The  Finance  Minister  of  that  time  had  somewhat  of  a  reputation  for 
impressing  upon  deputations  that  he  knew  their  affairs  better  than  they 
did  Uiemselves.  In  some  cases  this  might  be  true.  This  disposition  of 
mind  on  his  part,  however,  was  of  very  great  service  in  our  interviews 
with  him.  I  was  convinced,  and  had  so  informed  the  board  and  Mr. 
Abbott,  that  unless  we  got  the  capital  reduced  by  thirty-three  per  cent., 
instead  of  twenty-five,  it  woult^  be  difficult  to  carry  on  business  satis- 
factorily. The  difference  would  be  some  $700,000;  and  we  needed  it  all^ 
if  we  were  to  start  on  our  new  career  with  any  sort  of  a  reser\'e  fund. 
But  it  was  difficult  to  express  this  to  the  Parliamentary  Committee,  for 
our  mandate  from  the  stockholders  was  to  ask  for  a  reduction  of  only 
twenty-five.  But  to  my  surprise  and  great  satisfaction  the  Finance 
Minister  himself  began  to  suggest  doubts  whether  a  reduction  of  twenty- 
five  per  cent,  would  be  sufficient.  This  was  exactly  the  line  we  wanted 
him  to  take,  though  we  did  not  give  him  to  understand  it  in  so  many 
words.  He  had  formerly  been  a  director  of  the  Commercial  Bank,  whose 
business  we  had  purchased,  and  knew  very  well  what  the  purchase  of 
that  business  had  involved.  And  he  was  well  aware  of  the  depression  of 
business  that  prevailed  in  the  country.  The  discussion  was  joined  in  by 
another  member  of  the  Cabinet,  a  very  influential  Montreal  gentleman, 
who  said  that  he  had  also  about  made  up  his  mind  that  a  greater  reduc- 
f  jn  than  twenty-five  per  cent,  would  be  necessary.  In  fact,  he  thought 
it  would  be  better  to  make  the  reduction  thirty-three  per  cent  This  was 
an  immense  relief.  1  doubt  much  whether  we  could  have  secured  such  a 
reduction  :f  we  had  pressed  for  it  ourselves,  but  when  the  Finance  Min- 
ister announced  this  as  a  decision,  it  was  accepted  with  a  satisfaction  I 
did  not  care  to  show.  On  this  basis  then  a  bill  was  brought  into  Parlia- 
ment. There  was  no  opposition.  The  bill  passed  without  difficulty,  and 
received  the  Royal  assent. 

When  this  bill  was  passed  I  felt  that,  at  last,  we  had  got  down  to  A 
Solid  basil.  The  credit  of  the  bank  was  restored,  we  had  a  good  circle  of 
valuable  customers  and  numerous  paying  branches.      Our  officers  were 


378  BANKING    AND    COMMERCE. 

,..  „K,re  than  three  ^e"-  ^o-  «  '^'^  '       j     ^^  ^^  .„^ 

felt  more  and  more  conlidrnt  tnat  we  i-uuiu  !L.„,rt,ble 

Je  hoped  in  time  might  amount  to  Mtj  per  cent,  of  the  capital. 

Bank  Failbum  is  Mo«t««al. 

About  the  end  of  tin,  long  P^''-^^  ,f /"T^^Vlf  balTad"  n" 
began  to  be  exhibited  by  acveral  .mail  """"-^j,  J^=;^;^:tf' manage- 
brfnches,  their  >-'"- '-'»|/"'f -^^rm-nage  of  on"  of  them  wa.  of 
ment  had  never  inapired  confidence.    Th«  "»"'8"  °^^^^^  .ecuatomed 

;:t;;hrtrrj^nhf;itr;rrrrx^^^^^^ 

:.:f  and  their  mode,  of  d«.g^^.in..  ..."--  -  ^^ - 

.Mceptible  of  change  from  changing  '■""■  J],^ J^J" H,  f„,  ...iat- 

*!,—  fri.i«  Knnlc  woald  Kct  into  dimculties,  ana  appi; 
day  or  other  this  bank  woaia  g«     „      j^^t,.  Bank  took  part  in  con- 

r:::.ntl»m-:o«r^i.:r^.a^ 

,uch  accurilv  a.  the  bank  was  able  to  offer  ua      in»,  no   a    ,      ^ 

which  inv«led  finaneml  and  bu..ne..  "«  "'^.»^"  ,„  ^^  .bout  re.p«=t- 
(,8T9)  '"-"'^^r/^h  SligWrymp^m.  of  a  run  were  m..u- 
tag  the  po,.t.on  of  other  bank^  °''f„,f,i^,ed  thi.,  and  .trengthened 
feated  in  .ome  quarter..     I  had  '",       •f"'^  ^^^  meet  it  witlwut 

our  cash  rcjcr,..,  .„  '^''^'X^tr^^;L7.n.r  wa.  there  any 
difficulty.  However,  nothing  of  »h«  »'"°  j^  \  \  454  feel  the  con- 
„riou.  demand  -*«»P°%*^°tpre:lnted  number  of  commercial 
tinuou,  wearing  anxiety  of  'h'  ™f rt„  four  time.  a.  many  a,  they 
l-r."  "::  ::^ra=r:nrCa  -  the  time  when  the 
cloud,  would  break." 

~^„,  deep  the  a.pr.»l»n  •><»•"  ^!'^„Z"oZ"-^'^''  mT.'o"'l»T  18"' 
fact    IMt    B.nk    ot    Montreal    .lock     '"'',''"'"  "T„k  „r  Toronto  from  n«  W 

,S77  to  10.  in  187..  Th.  C'""''""  '^"^"^.'^it  .«.r  borrowing  .11  U  could 
nnanclal  po.ltlon,  wa.  tnen  In  .UOB  •«""•  ™'  ^  promlMory  note.,  which 
"„„  It.  banker.  ,1  .a.  "'"'"f.^r^  .  hw^T^^-nt'     I    n...r   .0«   <alth    In 


AS  GENERAL  MANAGER  IN  MONTREAL. 


37S 


OcH  BufiNKH  IN  New  York, 

During  the  period  of  reoripiniMllon,  and  before  we  had  got  the  ad 
of  Parliiiment  to  reduce  the  capital,  it  wai  uKleu  to  attempt  to  do  mncb 
bosinen  in  New  Yorlt.  We  had  no  jpare  money  to  lend  on  atoclil,  and 
our  commercial  crediti  were  not  looked  on  with  favor.  Neither  could  we 
draw  further  on  our  London  office,  which  wai  about  to  be  doled. 

We  therefore  retired  into  a  sort  of  obacurity  for  a  time,  and  made 
an  arrangement  with  a  private  banking  firm  to  occupy  a  part  of  their 
•pacioufl  office,  and  to  do  a  Sterling  bunlnesa,  under  their  wing.  We  did 
not  expect  to  do  more  than  p.iy  ezpeuMs  under  thi>  arrangement,  but  It 
enabled  ui  to  keep  our  hold  upon  New  York.  It  would  keep  our  officera 
111  touch  with  the  market,  and  in  practice.  We  therefore  gave  up  our  own 
office  in  Wall  Street  (aaving  a  heavy  bill  of  eipenie  thereby),  and 
entered  on  the  new  arrangement  on  a  very  economical  scale. 

This  continued  for  a  year.  We  did  a  quiet,  safe  busincM,  having  tbo 
advantage  of  the  eieellent  judgment  of  one  of  the  partners  of  the  firm 
in  the  critical  business  of  buying  bills.  We  made  no  bad  debts,  and  lost 
nothing,  somewhat  of  a  contrast  to  our  former  Wall  Street  eiperience. 
But  on  the  other  hand  we  matle  nothing. 

Our  relations  with  the  firm  were  always  satisfactory;  but  at  the  end  of 
a  year  our  managers  thought  we  might  make  the  experiment  of  opening 
an  office  of  our  own.  Our  credit  had  gradually  become  re-esUblished, 
and  we  were  beginning  to  have  once  more  some  disposable  funds. 

I  therefore  recommended  opening.  The  hoard  coincided.  We  rented 
a  very  unpretentious  office  in  Exchange  Place,  at  a  very  moderate  rent, 
and  commenced  business  on  the  new  foundation.  And  as  we  had  an  un- 
impaired capital  of  six  millions,  with  the  nucleus  of  a  rest  in  addition, 
we  considered  that  we  had  a  fair  chance  of  success. 

We  soon  found  that  we  could  sell  our  sterling  bills  at  fair  rates, 
drawn  as  they  were  on  a  Scotch  bank  of  undoubted  strength.  We  pro- 
ceeded very  cautiously  in  the  matter  of  issuing  commercial  credits,  how- 
ever, for  the  business  has  risks  peculiar  to  itself.  Before  long  we  were 
able  to  spare  funds  for  loaning  on  slocks.  Thus  between  the  sterling 
business  and  the  interest  on  our  stock  loans,  we  did  a  fairly  profitable 
business  in  the  first  year.  At  the  time  of  the  boom  in  Winnipeg,  as  will 
be  seen  later  on,  we  had  enormous  deposits  at  that  branch.  It  would 
have  been  madness  to  employ  them  in  discounting,  and  not  prudent  at  that 
time  to  place  theui  out  in  stock  loans  in  Canada.  We  therefore  transferred 
almost  the  whole  amount  to  New  York,  and  placed  it  out  on  eaU  loans 
tllere.  Our  New  York  business  now  assumed  respectable  proportions. 
The  brokers  included  us  in  their  daily  round  of  calls,  and  we  took  our 
place  once  more  amongst  the  Canadian  banking  institutions  which  have 
played  -och  a  prominent  part  in  Wall  Street  for  the  last  generation.  In 
the  second  year  we  made  very  considerable  profits.  But  a  cloud  was  still 
hanging  over  the  commercial  position.     Stocks  were  heavily  depressed. 


874 


BANKING  AND  COMAfERCE. 


Much  buiincM  in  the  Unltrd  Stntei  wai  carried  on  without  profit.  Bui 
Wall  Street  wai  free  from  spasuu,  our  ciutomrri  were  nmongit  the  belt 
of  the  city  broken,  nnd  every  one  tliat  knows  New  York  knowf  what  a 
highly  reipectnblr  clait  of  men,  ai  a  rule,  they  are.  (I  stay  my  hand 
here,  for  n  moment,  to  say  that  of  the  hundreds  of  millions  of  money  we 
loaned  to  brokers  in  New  York  during  the  twenty-five  years  of  my  ad- 
mi  niiitratlon.  we  nt^ver  lost  a  dollar.  We  did  lose,  however,  once,  by 
dealing  with  principals.) 

As  time  went  on,  our  managers  came  to  have  a  more  Intimate  acquaint- 
ance with  the  range  of  stock  and  bond  securities,  and  as  one  of  them 
had  been  brought  up  In  New  York,  we  came  to  feel  more  confidence  at 
headquarters  in  their  judgment.  We  still,  however,  bad  to  test  by  ei- 
perienc?,  what  the  effect  of  a  §harp  break  in  stocks  might  be.  It  came  at 
length,  and  to  my  gr>Mt  satisfaetion  we  passed  throuj^  it  safely.  Some 
premonitory  vvniptoms  had  appeared,  and  caused  us  uneasiness  in  Mont- 
leal.  On  the  day  when  the  heavy  all-round  break  took  place,  we  had 
advices  as  the  day  went  on ;  and  at  the  close,  I  took  the  night  train  for 
New  York,  to  scan  the  position  for  myself.  To  my  great  satisfaction, 
on  entering  our  office  early  nest  morning,  I  found  our  managers  per- 
fectly comfortable  and  satisfied.  The  brokers  bad  responded  bravely  to 
our  calls  for  margin.  We  never  called  for  jMgment  in  a  single  instance, 
nor  were  we  ever  near  the  point  of  considering  whether  a  stock  should  be 
sold  out.  Matters  quieted  down  in  a  day  or  two,  and  this  experience  gave 
us  great  confidenire  in  lending  money  on  stocks  in  New  York. 

And  this  has  been  our  experience  on  every  occasion  of  a  similar  kind 
since  then.  Our  customers  amongst  the  brokers  have  never  failed  us. 
We  have  passed  through  several  crises,  when  the  whole  market  went  down 
an  average  of  twenty-five  per  cent;  some  stocks,  of  course,  falling  far 
more.  Yet,  at  the  close  of  the  day,  our  loans  were  as  well  margined  as 
before. 

But  on  occasions,  we  have  been  approached  by  principals,  with  pro- 
posals for  time  loans,  and  by  one  of  these,  we  made  a  considerable  loss. 
The  loan  was  desired  by  a  man  in  good  commercial  standing,  on  a  stock 
quoted  above  par.  The  margin  offered  was  ample,  larger  than  usual,  as 
the  loan  was  to  be  on  time.  But  this  lending  on  time  to  a  principal 
proved  a  great  mistake.  The  party  proved  to  be  the  promoter  of  the  eh- 
terprise,  and  the  largest  owner  of  the  stock. 

It  had  formidable  competitors,  and  the  stock,  while  in  our  hands, 
began  to  fall.  We  called  for  more  margin,  and  for  a  time  he  responded. 
The  price  still  fell,  and  our  call  was  repeated.  But  this  time  he  failed  to 
respond.  The  stock  went  down  until  it  reached  so  low  a  figure  that  the 
promoter  was  ruined,  the  enterprise  absorbed  by  its  opponents,  while 
we  made  a  considerable  loss.  This  sharp  lesson  taught  us  the  im- 
portanc'j!  of  confining  our  business  to  brokers,  who  always  have  a  prin- 
cipal behind  them,  and  who  exercise  their  own  judgment  on  a  stock  be- 
fore presenting  it  to  oi. 


AS   GENERAL  MANAO'iH   IN    MONTREAL.  375 

With  comnwrclal  cndil.  our  upcrirncc  hai  not  bcfn  fortunate  We 
have  never  done  a  large  buiine..  In  thl.  line,  but  the  average  of  loM  hai 
been  high.  The  wont  waa  the  caae  of  a  credit  granted  to  a  couple  of 
young  Enghahnien  of  the  half-gentleman  clai.a  that  I  have  referral  to 

*/.  Jr'„  ■**"•  '■''"''  ''°"""'  "■'  '"  "Parting  grain.  What  they 
did  in  thi.  line  wa.  perfectly  Mti.factory.  But  on  one  occaaion  they  took 
a  fancy  to  dabble  in  the  ImportaUon  of  .teel  ralU,  which  they  thought 
were  likely  to  advance  heavily.  A  small  clique  of  fellow,  of  the  ume 
CI.M  a.  themKlve.  were  in  thii  venture.  We  gave  them  a  credit  to  import 
a  thouaind  tons,  a  great  mi.take  aa  it  proved,  for  thev  were  not  in  the 
boainen;  and  the  price  initt:ad  of  advancing,  fell  heavily.  By  this  and 
•imilar  operation,  the  iirni  wa.  rained.  Some  circumaUncc.  tr.n.plred 
in  our  caw  which  created  a  .uaplcion  of  fraud,  and  we  pro.ecuted  one 
of  the  partie.,  but  got  no  aatUf action.  We  did,  however,  get  judgment 
.galnat  each  of  them  individually.  The  younger  of  the  (irm  went  home 
to  hi.  father,  a  country  genUeman  in  the  We.t  of  England.  We  Knt  the 
judgment  to  London  for  Mecntion,  but  the  yoong  fellow  wa.  alway.  kept 
out  of  the  way.  The  neit  time  I  went  to  England  I  thought  well  to  «> 
down  to  .ee  the  father  and  endcavo'  to  elTecl  a  compromise.  But  he 
flatly  refuied  to  .ec  me,  and  uon  afterward,  he  sent  hi.  son  out  to  In- 
di.;.  Many  years  afterwards  we  heard  that  he  had  relumed,  and  that  he 
was  about  to  be  married.  This,  we  kw,  was  our  chance.  We  threatened 
to  put  our  judgment  into  execution.  An  olfer  of  compromise  wa,  made 
at  once.  We  refused  to  take  it.  The  offer  thereupon  was  doubled,  and 
after  consultation  with  our  agents  in  England,  we  concluded  to  settle  on 
tliese  term,.    And  thu,  ended  this  disagreeable  busints,. 

Only  on  one  or  two  occasion,  during  a  long  course  of  heavy  business 
m  New  ^ork  have  we  suffered  by  actual  fraud.  We  have  bought  million, 
of  pounds  of  sterling  bills,  evfry  year,  and  made  loans  on  stocks  aggre- 
gating as  has  been  said,  hundreds  of  millions,  but  have  never  had  a 
forged  bill  of  exchange  on  our  bands,  nor  a  fraudulent  certificate  of 
stock. 

But  we  were  victimi,ed  on  one  occasion  by  the  presentation  of  forged 
bill,  of  lading  under  circumstances  more  remarkable  than  anything  in 
my  long  banking  experience,  or  perhaps  in  the  experience  of  New  York 
Itself.  It  wa,  a  sad  case,  and  one  would  willingly  draw  the  veil  of 
.ilence  over  it.  But  a,  thc,e  reminlKence,  are  written  a.  Icon,  of  in- 
ttruction,  I  cannot  pass  it  by.  Moreover,  the  transactions  were  all  made 
public  through  the  courts. 

We  had  much  business,  both  in  Chicago  and  New  York,  with  an  ex- 
porting firm  of  the  highest  standing,  whose  very  name  carried  an  assur- 
ance of  respectability  and  honor.  For  many  years  nothing  could  be 
more  satisfactory.  On  one  occasion,  however,  they  departed  from  the 
Mual  course  and  inrtead  of  offering  bills  of  exchange  with  document, 
they  presented  the  documenU  themselves,  and  desired  a  temporary  loan 


m 


B/«NKINO  AND   COMMERCE. 


upon  Ihcm— Ihr  bilU  to  be  brought  in  rabfequcntl^.  The  tnmacUim 
trrroed  rfaionabU,  althoufih  a  little  out  of  coune,  and  the  loan  waa  made, 
which  wai  of  coii.;derable  anxranl.  One  or  two  dayi  paaied.  The  bilb 
were  not  brought  In.  The  PradiKe  Elchange  was  neit  itnrtled  to  hear 
that  the  (Imi  hail  failed.  But  inlnitelj  wone  than  this  waa  the  diaeorery 
that  the  doenmenti  were  forgerlea.  It  wai  incredible.  Sneh  a  tim 
might  ^»il,  but  Forgtr)  war  unthinkable.  It  waa,  howcrer,  only  too  true. 
Apprehcniion  and  trial  followed.  A  plea  of  inunitj  waa  put  in,  but 
nothing  retulted.  The  eatate  barely  paid  the  eipenie  of  the  liqoidatloa, 
and  the  bank  loat  t'l  -  wL jle  amount  of  the  loan. 

It  waa  a  heavy  blow.  But  we  could  hardly  blame  the  managen  under 
•uch  cireunutancei,  and  we  bore  the  rererac  with  the  philoaophy  which 
all  banks  have  to  excrciae  at  timea,  when  some  unforeseen  trouble  be- 
falls them. 

Jot'RIlBY   TO   THK   SoCTK. 

Our  general  sterling  business  was,  on  the  whole,  most  satisfactory, 
and  in  connection  with  the  moat  important  branch  of  it,  the  purchase  of 
cotton  bills  from  the  Sooth,  we  had  not  a  single  casualty,  large  as  the 
annual  turn-over  was. 

It  is  a  good  rule  for  a  banker  to  have  personal  acquaintance  with 
thoae  he  deals  with,  and  in  furtherance  of  thia  idea,  I  proposed  to  one  of 
our  New  York  managers  that  we  should  take  a  journey  down  South  to- 
gether, and  make  the  acquaintance  of  the  firma  whose  bills  we  had  bought 
in  the  aggregate  for  so  many  millions.  We  therefore  made  the  journey, 
visiting  Charleston,  Savannah,  Pensacola  (to  see  a  timber  firm  there 
whose  business  was  in  charge  of  a  young  man  who  had  been  one  of  our 
clerka).  New  Orleans  and  Memphis.  At  each  place  we  called  upon  mer- 
chants and  bankers,  discussing  with  them  the  prospects  of  trade  and 
movementa  of  businesa  and  finance.  It  was  one  of  the  most  Interesting 
journeys  of  my  life.  The  bankera  were  Ihorooghly  modern  in  ideas  and 
methods,  and  the  merchants  were  men  of  more  than  average  intelligence, 
some  of  them  sent  out  from  Liverpool  to  represent  great  cotton  hoosca 
of  that  city,  and  being  in  the  habit  of  paying  periodical  visits  to  Eng- 
land, France,  and  other  cotton-consuming  countries.  And  it  surprised  me 
to  learn  what  a  large  portion  of  the  crop  was  sent  to  Continental  conn- 
tries. 

Silver  Agitation. 

Daring  the  great  Presidential  Campaign  of  that  time,  under  Bryan 
as  a  candidate,  we  were  in  constant  anxiety  as  the  phases  of  the  contest 
unfolded  themselves.  All  our  loans,  whether  on  call  or  on  time,  were 
made  payable  In  gold,  but  we  were  very  certain  that  if  the  Bryan  policy 
prevailed,  gold  would  go  to  a  premium.  There  would  be  a  natural  limit 
to  this;  depending  on  the  ratio  that  was  fixed.  But  the  premium  would 
certainly  be  enough  to  make  it  citremely  dilBcuU  for  brokers  to  fulfil 
their  contracts.     It  would  therefore  Inevitably  bring  serious  elements  of 


AS  GENERAI,  MANAGER   IN  J    .aTREAL.  srr 

dIffeuIlT  '•■xl  d»ngrr  into  •  buiinru  wlikh  hnil  alwayi  brtn  rminrnllT 
ulUfartory.  Fwwrlnii  IhU  wr  iruliMlljr  riirtallrd  our  loam,  and  by 
thf  lime  of  khr  rlration  lind  rrdumj  tb«n  to  a  v«y  trlAInf  amounl.  But 
the  food  HnK'  of  the  Anwrlran  prople  oner  more  prevailed.  Tlic  eriill 
»•■  Mfeljr  pawd.  BntineM  reaumed  iti  ordinary  eonrae  and  we  looa 
pal  out  mom  la  larir  an  ratent  aa  utiinl.     But  there  wn<  a  time 

during  thii  .igilatlon  when  (old  did  became  dillienlt  to  obtain,  and  we 
unee  actually  paid  a  premium  for  a  coniiderable  amount  we  deiired  to 
tranafer  to  Montreal." 

Vum  TO  CoHMtaciAi.  CiNTau  i.x  Exoi.tNr— Thi  Baaiiaa  C«n  ;. 
In  connection  with  our  itrrling  buaineii,  both  in  New  York  and 
Montreal,  I  paid  periodical  viiita  lo  England,  and  ipent  much  time  in 
the  great  centrea  acquiring  information.  Thia  I  could  caaily  do,  through 
our  banking  correipondenta  in  London,  Liverpool,  Glaagow  and  Briatol, 
from  whom  I  received  much  of  what  may  be  called  imult  information, 
that  eonid  never  have  been  obtained  otherwiae.  Thia  we  uaed  for  the 
guidance  of  our  iterling  operationa  in  New  York  and  Montreal.  Aa  a 
•pecimcn  of  the  kind  of  information  given  to  me,  I  will  mention  aeveral 
initancea,  withholding  namea  of  courae.  They  occurred  many  ycari  ago. 
In  one  of  the  above-named  centrea,  a  commercial  firm  had  for  yeara 
maintained  the  higheit  itanding.  and  waa  marked  with  the  higheit  markt 
in  Reference  Booka.  Bills  apon  thii<  houae  it  waa  generally  conaidered 
•afe  to  Uke  to  any  amount.  But  while  in  that  city  I  waa  conAdcntially  In- 
formed that  the  senior  partner,  to  whom  nearly  all  the  capital  belonged, 
had  retired  from  the  firm  about  a  year  before.  Thia  waa  not  generally 
known.  The  name  waa  reUined;  ao  waa  the  raCng  in  reference  booka, 
and  the  buainess  waa  going  on  aa  uaoal.  But  the  strength  of  the  Urm  wal 
so  diminished  that  it  waa  practically  a  dilfercnt  concern.  I  therefore  ad- 
vised New  York  ofiice  to  have  all  billa  upon  that  (inn  in  fnturc  accom- 
panied by  documents.  In  the  same  city,  with  regard  to  another  firm,  and 
in  a  dilfcrent  branch  of  business,  I  learned  other  particniara  which  I 
deemed  impcrUnt  enough  to  cable  out  at  once.  I  always  carried  « 
special  cipher  with  me  in  these  visits  abroad.  The  cable  cost  about  five 
dollars,  but  it  was  worth  ten  thousand;  for  the  firm  foiled  shortly  after- 
wards. 

Ths  Barino  Crisis. 

All  the  world  knows  now  of  what  was  impending  some  years  ago  ove» 
the  great  house  of  Bcritig,  and  how  under  the  lead  of  the  Bank  of  Eng- 
land the  resources  of  all  the  banks  in  the  country  were  skillfully  com- 


13  1  had  read  a  pap«r  b«ror«  the  Atnerfcan  Bankers  Association  at  Chicago 
soma  time  previously,  on  this  sUver  question,  taking  of  course  the  view  entpr. 
Uined  In  New  Tork  and  the  East. 

It  was  i»elved  with  general  favor,  escept  hy  a  gentleman  who  was  not  a 
banker  at  all. 


«n  BANKING   AND  COMMERCE. 

f.a«l..l.n.  .11  .v„  th,  world.     >  '"  '\^""  .'XTST-t  ^ 

the  bill,  to  .  modcMt.  .am.  Tbi.  «.  ou,  po  iry,  .nd  wbn.  tbr  emu 
.,,p.n^n«i  It  would  .»t  h.v.  ou,tt««l  m»lr,l.lly  even  If  .n  «to.l  .fp- 
page  had  t     ''n  plaee. 

CiilcAoa  AKD  Mm*"'"".- 

About  tb.  y«r  U79  we  opened  .n  oBce  In  Chle.»o.  M'>"'''«J"»^ 
rl.ir.«.  .K  clotelT  eonnected  In  tr«ie.  One  of  our  l«p.l  c».tomen 
T.VJ^^A"'^'  wine-  tbe.,  .nd  «.n.  of  o„,  d>ee.on  we^ 
well  .equ«lnted  with  the  mereintUe  people  of  tb.  f'  ^  7'"  "^^ 
p„.ldeT.  .oe^nponled  n«  to  look  over  the  , round  '"f  '°f  *'J  J'  '^ 
Tervlewed  »  number  of  n«.  In  th.  »r.ln  nnd  P'";"'™ 'f^' .  ^.^fj^^^ 
„  eon.ider.ble  eneou,.gen.«.t,  .nd  our  report  to  tb.  '«'J  ™ J.",;".'; 

depo.  U,  .nd  ta  tln«  to  h.v.  th.  .ccunt.  of  Interior  *•"■"•     "1^'^ 

£rn7rr;::!::t.t:N^«^^  -  -"4£t^^^^ 

„.IW  eluWe  on  .  .te.dily  higher  r.te  of  lntere.t,  we  found  .t  the  e.d 

Sr»^':ei;ro:^^:^-^T""^Ht^ 

"'  ?;f  :i^,.,";"Jw:::r.  h.v.  renamed  m  Chle^,  but  th.t  one  oMh. 

receipt..    For  »bree  d.y.  «  !""  ^      ^     ih.i  ti„„;,  howner, 

our  eu.ton.er.  could  .tend  the  .h«k  or  »«■        ?  ,„ton.er,  wet. 

jthtkrd  -'^-.'^-pp-r^'t'JdtMl  we"7.r'tit  .Tu"^ 


AS  GENERAL  MANAGER  IN  MONTREAL. 


S7» 


and  which  wrrr  fully  rrroiipn]  bjr  Ihr  rnluiimil  ruluc  of  Ihc  Boird  of 
Trade  irat  held  hf  mir  inanngrr. 

Out  Chkafo  pipcrlrncr,  hawevrr, '««  not  throwD  awajr,  ai  II  cnablnl 
ua,  with  more  intrlllfrenri'  iiiid.ronAdfnrf.  to  parry  those  loaiit  on  firaln 
In  Oululh  and  .MlnneapoIU,  which  were  ao  prontaient  a  feature  of  our 
builncii  Ionic  nun  afterwnrHa.  The  Mlnn-'upolii  loam,  however,  I  may 
•ay,  were  nNn.ri  (jtiaranlM-d  by  a  Iwnli,  and  were  done  at  a  allghtly  lower 
rate  of  Intemt  on  that  account.  Tl;c  Uuluth  loana  were  made  direct, 
but  undiT  the  lupcrrlninn  of  a  fomiir  oAcrr  of  a  Canadian  bank,  whom 
we  could  Implieilly  triul.  While  In  Dniuth  on  one  occaalon  In  connection 
with  our  loniM  Ihi-e  I  miidc  n  thorouf[h  examination  of  the  lyatem  under 
which  warehouar  recelplir  for  grain  were  granted  and  cancelled.  A  per- 
fect •yntctn  of  registration  wa«  kept  up,  and  Irregularillca  rendered 
almost  Imimssible.  I  have  often  wished  that  some  system  of  tin'  same 
kind  was  In  force  in  Montreal, 

All  these  loans  were  mode  on  what  are  known  as  Term.,'-<l  receipts. 
Receipts  of  warehouses  in  the  Interior  have  proved  troublesome,  and  I 
have  p?ver  encouraged  them. 

Visit  to  Manitoia.  • 

In  the  summer  of  the  year  1878  I  determined  to  pay  a  visit  to  Mani- 
toba for  the  purpose  of  ciamining  the  business  of  our  branch  in  Winni- 
peg There  was  no  route  to  the  Northwest  at  that  time  except  via 
Chicago  and  St.  Paul.  The  drst  wos  comparatively  familiar;  but  beyond 
Chicago  I  had  never  travelled.  I  stayed  over  a  day  in  St.  Paul,  J:  we 
bad  some  banking  connectiom  there.  It  was  at  that  time  a  somewhat 
sleepy-looking  old  place,  and  much  nnliki:  Its  activr  neighbor  Minneapo'' 
St.  Paul,  however,  was  said  to  be  much  the  more  wealthy  of  the  two 

Resuming  my  journey  to  Winnipeg,  by  a  night  train,  I  well  remem- 
ber opening  my  eyes  in  the  morning  and  seeing  what  appeared  *3  be  a 
vast  eitent  of  ocean.  I  could  not  conceive  at  lirat  what  it  was,  for  I 
knew  wc  were  n  long  waj  from  Lake  Superior,  but  at  lait  it  dawned 
upon  mc  that  this  was  the  beginning  of  the  great  prairies  of  the  North- 
west. And  so  it  was.  I  had  seen  the  cultivated  prairies  west  of  Chicago, 
but  never  had  my  eye-,  beheld  such  a  vast  expanse  of  unoccupied  ocean- 
like  green  wilderness.  We  sped  on  our  way  through  what  was  then  an 
almost  wholly  unsettled  countrj-,  and  'ale  in  the  afternoon  we  reached 
Winnipeg. 

Winnipeg  had  then  about  six  thonnand  inhabitants,  and  the  business 
of  the  branch  was  of  about  the  same  extent  aa  that  of  an  Ontario  town 
of  the  same  siie.  No  one  who  knows  the  splendid  capital  of  the  Canadian 
Xorthwf  t  now,  with  its  handsome  streets,  niagniScent  public  buildings, 
banks  (there  are  eleven  of  them),  great  warehonaea,  nnj  beautiful  boule- 
vards of  villa  residences,  can  co.-;ceive  what  Winnipeg  was  at  that  time. 
It  was,  in  fact,  little  better  than  a  straggling  village.  Its  streets  were 
entirely   uupaved.     At  the  southern  extremity  stood   the   historic   Fort 


,M  BANKING    AND    COMMERCE. 

Garry,  the  lie.dqu.rler.  of  the  Hud.on  B.y  Cott.p.ny,  .nd  once  tte 
,„J„t  the  stirring  event,  of  the  Kiel  rebellion  The  Mcreh.nt.  B.nk 
,a,  the  fir.t  e,t»bll.hed  in  the  Northwe.t,  »nd  .t.  .upplie.  of  n.o«y 
n  .ent  by  long  journey,  over  the  v..t  rtretehe.  of  pr.ir.e.  to  th. 
rXnt  eity/we  3id  ne.rly  .11  it.  banking  tu^ine.,  or  «,me  ye.r.,^nd 
in,leed  of  the  whole  Northwe.t.  But  it  w««  a  small  aff.ir  at  the  best. 
Sat  and  "the  fort,  of  the  Hud«.n  Bay  C-P-ny-litae  «n^- 
of  civili.ation  amidst  surrounding  «.litude,-therc  P'«''""f  J' 
lothinir  in  the  interior.  Now  traversed-  by  railway,  in  all  direction.,  it 
:«  then  I'tteriy  untrodden,  exeep.  along  the  trail,  of  the  enlerpr,.ing 
voyageur.  of  the  great  Company.  ,,,„.1. 

While  1  WM  fn  Winnipeg,  sitting  in  the  manager.  "»"■•"""' 
stained  ine..enger  eame  in,  bearing  a  paekage  of  letter,.  He  had  come 
from  a  far-distant  settlement  in  which  a  few  trader,  had  g«"«-d  w.* 
whom  the  bank  did  busines,.  The  manager  asked  him  how  long  he  h^ 
been  on  the  road.  He  replied,  ..>(«»  rf«,..  Noticing  that  the  p«ke^ 
wa.  damp,  the  manager  a.k  the  me.Kngcr  what  wa.  the  reason.  He  r^ 
^li  d  tha?  he  could  not  always  keep  the  packet  out  of  the  -ter  whence 
wa.  fording  the  river..  The  place  i.  now  a  pro.perou,  town  w.thm 
lixteen  hours  of  Winnipeg.  ....        „.„    ,.ll«l 

We  had  some  customer,  in  a  village  about  sixty  m-k"  «'"y'  ""=J 
Portage  LaPrairie,  at  the  extremity  of  settlement  and  eiv.hxation,  and 
being  deairou,  to  see  the  interior  for  my«:lf ,  the  manager  made  arrM^ 
menu  for  a  journey  there.  The  first  fifteen  mile,  was  through  scattered 
^L.«U  along  the  Assiniboine  Bivcr.  We  then  struck  out,  acros.  the 
uninhabited  prairie,  and  in  about  an  hour  were  fairly  ""' -'  '«^^ 
land"  so  to  speak.  Not  .  .ingle  thing  -a.  in  sight  but  the  ««■"  •««° 
like  cxp.n«!,  .11  around  u.,  and  a.  we  drove  »long  hour  after  hour,  I 
could  not  help  thinking  what  would  happen  if  we  lo*  he  "«■'.  '"^^ 
found  our«.lve,  .lone  in  a  tr«^kle,.  wildemcs,.  A  «nall  speck  app^red 
after  a  time  upon  the  hori«,n.  The  speck  enlarged  until  ■'  b"*"^"  « 
tarm-house,  standing  alone,  in  the  great  expand.  We  passed  through 
the  farm-yard,  and  then  .truck  out  once  more  into  the  open  prairie., 
arriving,  after  p..,ing  a  few  farms,  at  Portage  LaPr.ine  m  the  after- 
noon. In  the  sixty  mile.,  which  we  then  tr.ver.ed,  there  are  now  five 
.tation.  of  the  Canadian  Pacific  Railway,  and  the  la.t  ten  mile,  of  our 
journey  now  form  part  of  one  of  the  find  whct-gnlwing  'fPon.  of 
he  continent.  Portage  LaPrairie.  now  .uch  .  prosperous  and  thrivmg 
town,  with  three  or  four  bank.,  and  great  mUl.  and  "'"f'"".  '"  ">'» 
a  dirty  little  village.'*  the  only  "hotel-  being  a  ml«raWc  little  tavern, 
something  like  the  Eagle  Hotel  in  the  story  of  "Davul  Har^m. 


AS  GENERAL  MANAGER  IN  MONTREAL. 


i 
3 


:<i 


Beyond  Portage  LaPrairie  there  was  at  that  time  practically  nothing. 
In  the  regions  beyond,  where  now  there  are  such  numbers  of  towns* 
bunk  offices,  magnificent  farms,  cattle-ranches^  coal  mines,  and  thousands 
of  miles  of  railway  stretching  on  to.  and  through  the  Rocky  Mountains, 
and  where  a  hundred  millions  of  bushels  of  grain  were  grown  this  year 
(I9O8),  nothing  was  to  be  seen  but  herds  of  buffalo,  Indians  of  numerous 
tribes,  and  the  forts  of  the  Great  Company.  Only  thirty  years  have 
elapsed  since  mj  visit,  yet  in  that  short  time  a  new  world  has  been 
evolved  from  the  wiulemess. 

The  journey  home  was  unattended  by  incident,  but  I  could  not  fail 
tu  have  realized  what  enormous  sLt..tches  of  country  are  contained  in 
this  Northwest,  and  formed  some  idea  of  its  possibilities,  when  a  con- 
venient way  to  it  was  opened  up. 

The  Manitoba  Boom. 

Little,  however,  did  I  dream  of  the  extraordinary  developments  that 
Were  to  come.  It  was  only  three  or  four  years  after  this  that  the  first 
signs  of  the  "Manitoba  Boom"  began  to  appear.  The  Pacific  Railway 
was  being  pushed  with  extraordinary  energy,  and  made  it  easy  to  traverse 
regions  till  then  inaccessible  and  practically  unknown.  But  the  more 
the  country  was  known,  the  more  highly  it  was  reported  of.  Yet  the 
land  could  then  be  bought  for  one  or  two  dollars  an  acre.  An  idea,  how- 
ever, soon  arose  in  older  Canada  that  these  lands  must  largely  increase  in 
value.  Reports  of  the  condition  of  things  were  constantly  sent  to  the 
older  provinces,  and  gradually  a  heavy  speculative  demand  sprung  up 
from  the  Kast.  Along  with  the  stream  of  bona-fidr  settlers,  which,  how- 
tver,  was  never  a  large  one  at  that  time,  there  came  to  the  Province  a 
number  of  speculators  in  land,  with  money  in  band,  who  began  to  make 
purchases,  more  or  less  extensive,  here  and  there,  as  more  and  more  of 
the  country  was  opened  up.  These  early  speculators  all  made  money. 
Reports  of  their  successes  spread  about.  More  and  more  men  were  led 
to  invest  money,  and  l-efore  long  the  "land  fCT'er"  *«gan  to  work.  As  is 
usual  in  such  developments,  men  soon  ceased  to  take  a  practical  view  of 
possibilities,  and  instead  of  this,  "to  dream  dreams  and  see  visions." 
Men  began  to  say  that  instead  of  two  or  three  dollars  an  acre  prairie  land 
Was  worth  ten  or  twenty,  and  as  to  town  lots,  nobody  could  imagine  how 
much  they  were  worth.   The  ball  gathered  momentum  rapidly.  Swarms  of 


had  an  Introduction  to  another  customer  who  lived  at  the  hotel.  He  proved  an 
extraordinary  fellow,  one  of  thoae  who  have  knocked  about  the  world  until 
they  are  tired;  who  know  everybody  and  have  Been  everything.  We  talked  far 
Into  the  nlfht— mostly  about  Ensland.  I  mentioned  that  I  wua  from  Yorkahlre. 
He  knew  the  county  well.  I  spoke  of  the  great  FltiwilllRm  family  of  the  neigh- 
borhood where  I  waa  born.  Strange  to  aay.  he  knew  them,  too,  and  told  me  a 
curious  story  atiout  a  blacksmith  who  owned  a  Utile  freehold  near  their  es- 
tales.  A  traveller  ealling  one  day  to  get  his  horse  shod,  enquired  who  owned 
most  of  the  land  thereabout,  on  which  the  blacksmith  replied,  "OH.  IT  ALL  BE- 
LiONaa   TO  ME   AND   LORD   PITZWIU.IAM." 


n« 


BANKING    AND   COMMEHCE. 


"d  bought  „ll  they  couIdlTShlr"'"' ■''■'"•"'"' "'"*'■='»■*. 

l.ep.„  heg.„  t„  .ettle.  »id  „„X„  7:^  """"'  '""''"  ""^  ^ 
town,  of  the  future.    AW   wlr  th^     ,  '^  "'"  "•*"'  ""t  "•  the 

whleh  fusing  ,„..  n,ight  'ril  ':h„  ™  „'  °  ""T'  """'  '»  ""  P""  »" 
of  loU,  in  the  f„t„,e  town,  o,  e  ty .     jTm  "'"'  ,'°'»'"  >«  "■<'  """O 

«nd  in  little  p|„e.  „f  fitw7r\  hunl!^*^! '^"  ""' """d  »'»"*. 
-gine..  ™ight  g„,„  to  .ow:,.°„'/ei,e"  t^;:'""'""'  T"'"  P"P>' 
n  for  the  po,„,,i„n  of  the  land,  rom,H  >./"""■'  "^  ^'""'^  «* 
te  be  eovered  with  .tree.,,  1,7,  ™S  jw  ,r'  ""'IL^-.  ''y  -d  by, 
Ontario  in  1856  wa.  repeated  Tneven  a  ^Ire  f '  ^'"  "^""•"'  "^ 
■«ud.  of  people  »ent  in  b„yl„,Td  J  ."'""K""'  f"™.  Thou- 
fidenee  „,alci„g  pa.™,,,,  down  with IhetTeT"  "'"■  ""  """°"  ™- 
tbemMlve,  with  mortgage  obli^H™.  !"  ''  """"^-  ""^  entangling 

-liing  when  the.v  couM^^o"  f;,""." 'coTtTn     ,?'"  ',""«  ''™'  ■>'    '»"' 
•«n.e  longtenn,  and  never  drel"ta^  „T»h  ^  '"''"""^  P"'"  °»  «« 

which  were  to  drag  then,  do^  .r*,;'  ""^  "■""''""  ""  "'eir  mortgage. 

Meanwhile  the  bn,ine™  of  our  Winni.,,^  u        ,. 
"■r  P^Portion..     Depo,it,  inerea  :d  t ^Wrf      rr  *™"'"« '■■  ™'- 
•ction,   pawing  through   the   offi™  !?      ,  ^'"  "■"°°"«  "'  '™>ii- 

thronged  fro„^„,n4\^"*«/"  'credible.  ■^'«=  «>™'"  w^T 
door,  of  an  Opera  Honfe  when  ,le  e^  talT  "  T  '"""-^  "  «■« 
■"«.  A  .tranger  would  have  ,„Z!e7  that  ''T'  ^'"""  "  ^'^""^ 
Pl.«;  but  it  wa,  j„,t  the  op  J«e  Vol!  /?r  '"'"^  ™"  ""  »«ki«g 
Po.it  n.one.v,  or  to  put  in  drL7^  for  111"/  "-\Pe°Pl<=  "anted  to  d' 
forring  money  to  Winnipeg.  The  ^',1^°"/"  *'""'  P°"""'  "«"- 
while  thi.  toon,  wa,  at  iCLgh,  a^d  »w "  ,1    "'TJ'  '""«'  '•"■■"°'» 

During  thi,  inflation,  a,  f,  alwaV,  L  ""'  """  '-'•'■»■ 

l"i"g  prevailed  whieh  «  all  reaaola  de«  ""'  "x,"^''  °'  «"-.g«.t 
for  people  to  eat,  drink  or  w™r  Th  ''°"""«  ™  too  «od 

"d  coniforUble'ehurehe"  lu^h  a,  wel'TLw'^  '""  """•  "^ 
town,  were  replaeed  by  eo.tly  ereetiom  <i,  f  w°  *°  '  '"oder.te-.i.ed 
Hon.e.  were  built  of  the  be.t  ,^?.  ■  V  f°'  *'""treal  or  New  y„rk. 
»..  «id  that  every  brieMttV  wTr^^  ItrW  f"'"'  "'  °"=  "'  '"^'"« 
h»d  eo,t  a  dollar.     Yet  the  rej  buleTo/fh  T  '°""™«  ''"'•"«) 

■t.  export,  of  wheat  «r,reely  nwZ«r^  /  "'""'^  *"  «"  ■»•"  that 
-memher  „n.wering  to  a  2rv  „f  „1  °."^"'°"  ^'"'"''  '  y-="  I 
Vork  With  whom  we*did  b„r;f,  that  th^  '"  ""  «'"'"  ""'"'"  ^'w 
•ho^  of  Manitoba  at  that  tin,"  ke  rwrhT.'  ^T  '"°"'"'  "■  »' 

After  two  year.,  ,ig„,  of  reaeti™  ,e    ,n      n       "       .""*  "■ 
pl.ee  to  praetieal  realitie.      Men  tl,7t  j         .      ™°"  °'"'  ''i'ion,  gave 
.he  diiferenee  between  tLe  el«.^  ,t™  "„Vor  ""  !,r  '"""  "^^-^ 
of  a  provinee  in  the  interior  of  the  ™„,  "°  ""''  ""  P'-i^e  farm. 

-  -»•     The  twenty  doll'-^nTe^  -■„  ^ -e  -^"^to 


AS  GENERAL  MANAGER  IN  MONTREAL.     S83 

five  two;  and  men  that  had  ^ven  mortgages  at  fifteen  and  twenty  dollars 
.  au  acre  found,  when  they  conid  only  sell  to  actual  settlers,  that  five 
doUan  an  acre  was  the  utmost  they  could  get  for  the  best  lands.  Loan 
companies  that  had  lent  money  on  security  of  prairie  lands,  town  lots, 
stores,  churches,  and  warehouses,  found  that  the  security  in  hundreds  of 
cases  would  not  realize  half  or  a  quarter  of  the  loan. 

As  to  the  banks,  nearly  all  their  mercantile  customers  had  become 
entangled  iu  land  speculation,  and  were  caught  in  the  reaction.  Their 
trade  bills  were  largely  drawn  on  men  who  had  speculated  and  failed. 
Many  of  th^-e  bills  represented  goods  of  the  extravagant  style  before 
mentioned,  .<  Hich  goods  were  never  paid  for  by  the  purchasers.  Some 
bills  were  for  more  than  the  makers  owed,  and  some  were  downright 
forgeries.  Manufacturing  enterprises,  saw  mills,  foundries,  fisheries  and 
such  like  collapsed.  Thousands  of  speculators  whose  operations  had 
once  made  business  to  boom,  left  the  province  bankrupt.  Failures  mounted 
up  to  terrible  figures.  The  banks  had  their  cases  full  of  past-due  bills. 
In  one  town  every  single  trader,  with  one  exception,  became  insolvent.  In 
that  town  the  losses  of  the  Merchants'  Bank  amounted  to  seventy-five 
per  cent.  C'f  its  whole  discounts.  Some  ambitious  ckurcke*  now  became 
practically  bankrupt,  and  made  proposals  of  compounding  with  their 
creditors.  This  revulsion,  however,  never  became  a  panic.  It  was  ex- 
actly like  that  of  1857  in  that  it  dragged  along  for  years,  bearing  down 
with  an  increasing  heaviness  as  the  years  passed  on.  Its  effects  were  not 
confined  to  Manitoba,  but  were  felt  in  all  parts  of  Canada.  Thr'-^  im- 
portant customers  of  the  bank  who  were  utterly  unconnected  with  !>iani- 
toba  in  the  way  of  business,  failed  in  after  years  owing  to  their  specula- 
tions in  the  time  of  this  land  boom.  As  to  our  customers  in  Manitoba 
itself,  only  a  few  of  them  survived.  We  had  made  very  heavy  profits 
during  the  time  of  the  inflation^  but  with  all  our  care,  and  the  constant 
directions  given  to  our  managers,  they  could  not  help  their  judgment 
being  b'aaed  as  to  the  character  of  the  transactions  offered  them.  Masses 
of  landed  property  came  into  our  hands,  formerly  belonging  to  our 
customers,  and  held  by  them  at  inflated  prices ;  also  endless  claims  against 
traders,  customers  of  our  customers,  scattered  over  distant  parts  of  the 
immense  interior.  To  deal  with  these  I  organized  a  separate  depart* 
ment  of  the  office  in  Winnipeg,  and  it  was  only  after  many  yean  that  it* 
functions  ceased.  We  wrote  off  large  sums  for  losses  year  after  year, 
but  I  fancy  other  banks  (for  by  this  time  there  were  others  in  the 
Province)  had  at  least  as  severe  an  experience  as  ourselves  proportionally, 
and  one  of  them  (not  now  in  existence)  a  far  worse.  For  our  profit! 
exceeded  our  losses  considerably. 


The  Bankers'  Association. 

The  general  managers  of  the  banks  had  met,  as  usual,  in  Ottawa  in 
1881  for  the  purfiose  of  conferring  with  the  Finance  Minister,  and  on 
the  journey  home  the  suggestion  was  made,  I   think,  by  Mr.   F.   W. 


384 


BANKING  AND  COMMERCE. 


;      ,    7^  «"«  iUficnhr  w„  to  settle  iT  °°"''  "  «  *«<!ult  .ub- 

that  the  ™.„,be«hip  ,|,„„y  c..„,i,t "Tf^  .      ,"'       ""  *"""''  "«'«<1 
o  »ot  by  i„  pri„,i     ,  Executive  Offil''"'  ^"*''  "•  ""/"-"<;«..  «^ 

Aswcation  was  to  rc.t      B„t  .,  "  """"•  ">"  government  of  ,t 

member*  should  be  ^L-f      "  ™  P'-'W^-l  that  .  euLTf 

™«.on  h.d  no,  p,ooeeded  far  W^^''  "^  "'  '""'  "■'"■'>">•  Di^- 
cear  ,0  „.  all  that  of  .,.,„„,  po;e,  X  L°"-  J"  ''"''■  '"'™  «  t*-'"" 
•".     It  was.  however,  felt  thaVit  1„  H  t'""  """  "-reise  none  at 

""»■"  ^  -""^""ed  in  »n,e  confid'ntiri  ^"'''"«'  ">"'  ">«  "•tier 

"nd  a  friendly  i„tin„tion  in  the  „n"  !^  ,T°""''  "'  "«=  A«>d«Mo«' 
concerned.     Tbi,  wa,,  bowever   a  ^Z        f  ™"  """"f'^  •»  'h"  bri 

"°'<;?':i:i°i"  T '"'  '^"- ™";'n"'  '"''"■'  ''="-^'  -i  r^^ 

Win.  ^^::  n^r r^fe'reTrr?  nr Vr '«'  -  ~ 

.re.r  i"sr«ri  -"-^^^^^^^^  e:-- 

enee  at  O^^^^TJ!^  ."^^IZZf!"  :l  l^  '»"^"-'  -^inlt: 
|»«  Act  were  dcirable.     The  M™  had  V  '"''  ""■"«""  '■"  "«  "'"^ 

charge  on  ,11  the  ..«t.  if  bank.  1^.  J-  I*"  "*  '"  "'"'«  «■«»,  a  «„t 
Jodera.  It  wa,  perfect."  reLtlblcthf."''  ''™"'  """ility  of  ,^. 
Wder.  of  notealere  inXTv  crcdt^''^' t""  "^  "'  '"""-h  " 
Oovemmenl  .ecnrltie.  met  with  .frenm, !  '"°P°"'  '"  "ver  b, 

Weatem  Bank,,  and  in  conf  ren"™^  .heT    °°'  ^'^'""^  '"^  '*« 


AS  GENEHAI,  MANAGER   IN   MONTREAL.  185 

olterMlivc  proposal.  This  had  .i  viry  simpk  look  on  paper,  and  only  a 
few  lines  in  the  Bunking  Act  were  required  to  make  it  law.  But  it  had 
a  very  far-reaching  aspect,  .ind  has  proved  in  practice  sufficient  to  make 
the  notes  safe,  even  when  a  bank  his  been  scandalously  or  even  fraud- 
ulently mismanaged.  M  the  next  renewal  of  the  charters,  stiU  further 
safeguards  were  introduced  in  the  shape  of  a  Redemption  Fund,  which, 
however,  it  has  never  been  necessary  to  put  into  operation,  though  there 
is  held  by  the  Government  a  large  sum  available  for  the  purpose,  con- 
tributed by  the  banks  in  a  fined  ratio  to  their  circulation. 

The  charters  of  the  bunks  were  again  under  review  in  I89I  and  the 
Association  acteil  with  considerable  edict  in  preventing  what  would  have 
been  an  undesirable  .-.dditio.i  to  the  Act.  It  is  casv  for  doctrinaires  to 
frame  theories:  it  is  only  practical  men  who  can  judge  of  their  effect. 
On  this  occasion,  as  once  before,  it  was  proposed  to  introduce  a  promi- 
nent feature  of  the  American  system,  viz. :  the  compelling  by  law  of  a  fixed 
minimum  of  reserves  to  be  held  by  the  hanks.  Against  this  we  were  a 
unit,  for  good  reasons.  We  argued  the  case  with  the  Finance  Minister, 
but  like  most  doctrinaires  he  was  fixed  in  his  opinion,  and  insisted  on  its 
being  mide  law.  We  then  took  the  strong  step  of  appealing  to  the  whole 
Cabinet.  The  Prime  i.inister  (Sir  John  Macdonald)  was  again  in  power, 
and  a  hearing  was  courteously  conceded  to  us,  a  very  rare  favor.  We 
stated  our  case;  some  four  or  five  speaking,  the  most  prominent  being  the 
General  Manager  of  the  Bank  of  Commerce,  who  h,id  formerly  been 
manager  in  New  York,  and  could  speak  from  practical  experience.  At 
the  close  of  the  inteniew  the  Premier  desired  us  to  put  our  views  into 
writing,  which  was  done,  and  we  heard  shortly  after  that  the  Jause  had 
been  ab-indoned. 

Thus  for  the  second  time.  Sir  John  overruled  his  Finance  Minister 
in  a  matter  that  concerned  the  banks.  It  was  on  this  occasion  that  the  fur- 
ther step  was  taken  in  the  way  of  making  bank  circulation  secure  by  the 
formation  of  Redemption  Fund  under  the  auspices  of  the  Government 
to  which  all  the  banks  contribute.  I  always  had  the  impression  that  the 
making  notes  a  first  charge  would  render  any  further  assurance  un- 
necessary i  and  events  have  so  proved  it.  The  fund,  however,  was  formed, 
and  when  its  provisions  can  to  be  understood,  it  was  found  that  under 
them  the  whole  of  the  banks  were  practically  guarantors  of  each  other's 
notes.  This  was  never  intended  by  its  promoters,  but  it  is  now  the  law 
and  under  it  we  may  safely  assert  that  the  bank  circulation  of  Canada  is 
far  better  secured  than  that  of  any  circulation  in  the  world. 

Before  the  decennial  period  of  1901  was  reached,  some  scandalous 
revelations  took  place  with  regard  to  the  overissue  of  notes  by  a  bank 
that  had  failed  in  Montreal.  This  circumstance  gave  rise  to  a  good  deal 
of  discussion,  and  to  suggestions  with  regard  to  giving  the  Government 
increased  powers  of  supervision  over  the  banks.  Impracticable  ideas 
Here  again  ventilated  and  discussed.  At  length  it  was  determined  that 
as  none  were  so  much  interested  in  the  matter  as  the  banks  themielves 


(86 


BANKIXG   AND  COMMEHCE. 


Plw'd  upon  ,h™,,  „j  ,j      .peS  '  o,,l  i^        ."*  ""^  »"'  "" 

-ote.  10  be  ,ig„,d  ,h.,  have  not  b^"r„  <T°.  ,'^-  "'""'  »'  """tag  no 
■««t  .nd  counter,ig„ed  by  Gove™ '"r**^  '"  "  G-re™n,ent  depV 
c»..  «he™e.  of  fS^d.  loun  nr/wftrf  ""'  '°  P"™'  ^•"'- 
teetor.  should  be  n„d  enough  to "ttemlT iK  *"''  "  ""^  """k  di- 

The  AwocLtion  h..  Z,      .'"""P*  "'  '•  impossible. 

cf  youn,  b.ntr.X'rp^bthedlJ*'"""'  ^°*  '"  '-'  «>-«»" 
which  .n  E„gli.h  b.nker,  weH  quXd  ,1  '  T"  ""•"'"«  °"  '  J""™"! 
n.o,e  .b,y  eondueted  .h.n  the  BTS^r.^^:'  :rLrn°"""''  '°  "^ 

HUTIIUMBNT  MOM  BiJlKINo. 

P^'^i'a.'t^JrotlCr  LTiZ^°^"°*  "^  "■'"'P"«J-  I  had 
vigorous  health,  I  n„  .nZntlZ^J"^  *'"■  ^'^*'  "'■'"8''  '«"  i" 
tlu>t  the  Wide  and  diversified"  to„,.r„f?hTT'.'''"°""  ^  ■"-»'  « 
"■■iy  failu«:  of  bodily  „,  menl7v^  .1.  I  '"'"''  '^"^^  "<>»  '"f"  by 
-"Iv^leing  year,,  ^he  S  aZLe/  1°"'''  '"""""^  ''«™P«"7 
with  a  eo-djntor  of  «p„"noe  X.^-.  '  *^""°""''  '"""'"d  ■»» 
burden  of  aotive  n-ana^e".  unUl  T  T"  '"'"  "  ''"«'  ?"*  »'  '"e 
«™lly  to  part  With  the  e^re.  aid  Ifl ieu  „'  T^""'  "  i™*""  '"  ™ 
«  «.plc  aUowance  into  the  co.pr.tl:^  ^^tXtllire  "*'"  ""■ 

for  those  who  are  still  be.r/the  bZen       f  L"''  °'  '*'"""  '»  "•"> 
i'.nlJng  sphere  of  this  eonl'nent  """^  '""  °'  "«  "'J'  '«  'be 


MoNTMjL,  October,  ]908. 


GlOROE    HlODI. 


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the 


